When we talk about Living Trust, the first thing which comes to our mind is a Revocable Living Trust which serves to avoid Probate. These are the most common types of Trust but there are many other Living Trusts which are as important as Probate-Avoidance Living Trusts that serve you to achieve other goals.
These are not so different from the Probate avoidance trusts as they are also created by the Grantor during his lifetime but most of them become operative upon the death of the Grantor and are more complex as compared to the Probate avoidance Trusts.
Following are the different types of Trusts beyond Probate-Avoidance Living Trusts
AB Trusts are Trusts made by married couples jointly to avoid Estate Tax. The term “AB” has been given to these trusts because upon the death of one spouse, this Joint Trust splits into 2 Trusts, namely Trust A and Trust B.
- Trust A - Survivor’s Trust
- Trust B - Decedent's Trust
The surviving spouse has little control over the Decedent’s Trust but he can still take a few advantages. For example- receive income from the decedent’s trust or continue to live in the house of the decedent, etc. Provided that all these things are written in the Trust document of the Decedent.
So, from the above discussion, we can conclude that the primary goal of AB Trust is to avoid “Double Taxation” and make sure that the benefits of the Trust are given to the appropriate Beneficiary, which is usually the spouse in most cases.
These are the trusts where the beneficiaries have no direct access to the trust assets but the Trustee has full control over them and can use it for the benefit of the beneficiary. These are usually used in cases when the beneficiary is young or is a person who is unable to handle the finances carefully.
There might be circumstances where there are chances of conflict of interest. Blind Trusts are Trusts where the Beneficiaries have no information or details of the properties held in the trust and have no right to intervene in the administration of the Trust. The Trustee is vested with complete control over the trust property from its management to distribution among the beneficiaries.
QTIP stands for “ Qualified Terminable Interest Property”. These Trusts are created for serving two important purposes:
- It takes care of your spouse as well as beneficiaries simultaneously. It happens usually in a second marriage if you want to distribute your estate to your children from 1st marriage and the current spouse.
- It helps to minimize Estate taxes by allowing the surviving spouse to decide how much property of the deceased spouse will be kept in the Trust so that it will be charged with the minimum Estate tax. This is very helpful these days when there is frequent fluctuation and uncertainty in estate tax.
A trust which is alone established with an insurance policy as its trust asset is known as an “Insurance Trust”. It is an Irrevocable Trust meaning thereby it cannot be altered easily.
The object behind making these Trusts is that after your death, the money that will come out of the policy will be exempted from Estate tax.
Also known as Spray Trust, is a Trust created for the distribution of assets among the beneficiaries not on the basis of a fixed amount but as per their needs and requirements. Trustees in a Sprinkling Trust have the discretion to decide the distribution on the basis of age, health, education, and other needs of the beneficiary.
Unlike a normal trust where the Trustee is bound by the terms of the Trust regarding the distribution, a Sprinkling trust gives guidance to its Trustees but the Ultimate decision is of the Trustee only.
Special Needs Trusts
Special Needs Trusts are those which are created for Physically or mentally challenged beneficiaries. For example, the beneficiary is of 60 years who is unable to take care of himself/herself, the beneficiary is insane or lunatic, etc. These are Irrevocable in nature.
Trusts in which the funds out of the trust property are used for the purpose of Education is an “Educational Trusts”. The Trustee pays for the education of the beneficiary as per the terms of the trust document.
The grantor of the Educational Trust can specify whether he wants the funds to be used for education purposes right after creating it or to be affected after the death of the Grantor.