Dan and Jean S. own a successful family business that was founded over 100 years ago. Max B.’s estate currently is worth more than $12 million. Sean’s 30-year old daughter suffers from multiple sclerosis. These people all have something in common: it may be in their best interests to create and fund a trust. There are several types of trusts, though. How will they know which trust meets their needs or fits their lifestyle?
Legally speaking, a trust is an entity “created to hold assets for the benefit of certain persons or entities…”
Generally, trusts consist of at least the following:
- A settlor or grantor who signs the trust document that establishes the trust, then funds the trust by transferring assets to it.
- A trustee who manages and distributes trust assets according to the terms of the trust document.
- At least one beneficiary who receives some kind of benefit from the trust.
- Property transferred to the trust that become trust assets.
There’s always a reason to set up the trust. While the beneficiary always receives something, the settlor may also receive a benefit from the trust. It depends on the type of trust established.
Specific Trusts for Specific Purposes
The reasons a settlor might opt to open a trust include:
- Escaping Probate. Revocable Living Trusts, if properly funded, will assist your estate from escaping probate proceedings entirely.
- Reducing Taxes. For example, a grantor-retained annuity trust (GRAT) may allow the settlor give family members large gifts with little to no tax consequence. With a qualified personal residence trust (QPRT), some settlors can continue living in their homes while offering potential tax breaks to their heirs.
- Asset Protection. Irrevocable trusts, including domestic asset protection trusts, may allow settlors to protect assets from creditors. This type of trust can be helpful when settlors or their heirs are employed in professions at high risk for litigation.
- Retirement Income. Some trusts help the settlor secure funds for their retirement. For example, a settlor who establishes a charitable remainder trust receives annuity payments from the trust for a set period of time. When the trust terminates, or the settlor dies, the named charity receives the remaining funds.
- Protect Heirs. Spendthrift and discretionary trusts can help settlors protect beneficiaries from credits or financial recklessness. In addition, a qualified terminable interest property trust (QTIP) provides for a less-wealthy spouse while preserving an inheritance for the settlor’s children from other marriages. Special needs trusts do just what the name implies – offer support and assistance to someone with special needs.
It’s Impossible to Cover Every Trust in a Blog
We urge you to consult with one of our attorneys as soon as possible. There may be a trust that will suit your needs and help you reach your estate planning goals. To set up an appointment, call us at 612.888.1000 or send us an email at firstname.lastname@example.org. Our main office is in Minneapolis, with other offices located in Maplewood, Cambridge, Edina, Mendota Heights, and Red Wing.