One of the most important parts of an effective estate plan is to ensure that a family’s children are properly provided for, whether they are minors or adults. This is often accomplished by placing some or all of the estate into a trust. The following five types of trusts have been found to be very effective in providing for the care and prosperity of a family’s children. In addition to the specific type of trust, many trusts can be written as revocable or irrecoverable trusts, depending on the specific needs of the family.
Irrevocable Trusts
An irrevocable trust is a trust where the property is placed beyond the control of the parents, subject to the terms of the trust. This has a variety of advantages, including reduced taxation and the fact that the trust’s assets are largely immune from the actions of creditors.
Revocable Trusts
A revocable trust is a trust that can be changed at the option of the grantor. These types of trusts are often used where changing family and personal circumstances may require modifying the trust over the course of the grantor’s lifetime. However, revocable trusts are somewhat more vulnerable to creditors and court actions than irrevocable trusts, and they do not share the same tax benefits.
The 5 Best Trusts For Transferring Money To Your Kids
A Section 2503(b) trust is an irrevocable trust that takes the assets and holds them for the child, with the provision that the child must have the income of the trust distrusted to him or her at least once a year. The creator of the trust can determine whether the trust will terminate upon the child’s 21st birthday. This trust can effectively shield the child’s inheritance from creditors, as well as provide the parents with some control over how the child will spend the trust, even after his or her 21st birthday.
A Section 2503(c) trust is similar, but automatically terminates upon the child’s 21st birthday. In addition, the trustee can use the money in the trust to pay for the child’s college education. This trust is a tool commonly used to protect the estates assets until the children are adults and capable of effectively managing the funds released into their care.
A spendthrift trust is a special type of trust that can be especially useful if a parent has doubts about their child’s ability to manage his or her funds effectively. This trust allows the trustee to refuse to release funds if he or she believes that they will be taken by a creditor or otherwise misused by the beneficiary. This trust can protect the child from being rendered penniless due to a lawsuit or other civic debt.
A special needs trust is a type of trust designed to allow an individual to be able to make use of the trust without rendering them ineligible for government aid. This type of trust can be useful for families who have disabled children, as it allows the child to avoid having to choose between their inheritance and the continuation of their government support. A special needs trust can also be used to shield an award from a personal injury lawsuit from government aid income restriction guidelines.
A grantor retained income trust is a common tool used to reduce the potential tax liability of the parent’s estate. This trust allows the property to be placed in the trust, but mandates that the grantor will retain the property’s income for a time determined by the grantor. This helps reduce the property’s federal estate tax value, which can dramatically reduce the taxes the grantor’s children will be liable for.
These five types of trusts all provide extremely useful estate planning tools to help ensure that a family’s children, whether they are adults or minors, can enjoy the property that their parents wish to bequeath them.
Sources:
http://www.law.cornell.edu/wex/estates_and_trusts
http://livingtrustnetwork.com/estate-planning-center/revocable-living-trust/types-of-trusts
http://www.law.cornell.edu/wex/grantor-retained_income_trust
http://www.nolo.com/legal-encyclopedia/spendthrift-trusts.html
Andrew Lamkin is principal in the law firm of Andrew M. Lamkin, P.C., where he focuses his practice in the areas of elder law, estate planning and special needs planning, including Wills and Trusts, Medicaid planning, estate administration and residential real estate transactions. He is admitted to practice law in New York and New Jersey.
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