Living Trusts - What Should I Know to Structure and Fund a Trust?

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About Living Trusts and Estate Planning

Living trusts, also known as revocable trusts, are estate planning tools that individuals can establish during their lifetime to manage and distribute their assets. A living trust becomes effective immediately upon creation, allowing the individual, known as the grantor or settlor, to retain control over the trust assets during their lifetime. Here are some common types of living trusts:

Individual Living Trust: Created by a single individual for their benefit during their lifetime. Upon their death, the trust assets are distributed to the designated beneficiaries or managed according to the trust terms.

Joint Living Trust: Established by a married couple together, allowing them to combine their assets into a single trust. This type of trust provides flexibility for managing assets jointly and simplifies estate planning for couples.

Single-Purpose Living Trust: Designed to serve a specific purpose or address particular concerns, such as providing for minor children, managing assets for individuals with disabilities, or supporting charitable causes. This type of trust focuses on achieving specific objectives tailored to the grantor's needs and preferences.

AB Trust (A/B Trust): Commonly used by married couples to minimize estate taxes upon the death of the first spouse. Upon the death of the first spouse, the trust divides into two separate trusts: the Survivor's Trust (Trust B) and the Decedent's Trust (Trust A). This structure allows couples to utilize both spouses' estate tax exemptions and maximize tax-efficient asset transfers to heirs.

QTIP Trust (Qualified Terminable Interest Property Trust): Allows a grantor to provide income for a surviving spouse while preserving the principal for other beneficiaries, such as children from a previous marriage. This trust ensures that the surviving spouse receives income from the trust assets during their lifetime, with the principal passing to the designated beneficiaries upon their death.

Irrevocable Living Trust: While most living trusts are revocable, meaning the grantor can modify or revoke the trust during their lifetime, an irrevocable living trust cannot be easily changed or terminated once established. This type of trust may offer tax benefits, asset protection, or specific estate planning advantages but requires careful consideration due to its permanent nature.

Special Needs Trust: Established to provide financial support and protect the assets of an individual with disabilities or special needs without jeopardizing their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI). This trust allows family members to contribute funds to enhance the quality of life for a loved one with special needs while maintaining essential public benefits.

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