What are some of the different forms of trusts?
Trusts come in a variety of forms and can be established in many different situations. Some common forms of trusts include:
(1) Asset Protection Trust – A type of trust that is designed to protect a person's assets from claims of future creditors, frequently established in foreign countries.
(2) Charitable Trust – trusts established to benefit a particular charity or the public. Typically charitable trusts are established as part of an estate plan to lower or avoid imposition of federal (and some state) estate and gift taxes.
(3) Constructive Trust – An implied trust established by operation of law. While a person may take legal title to property, equitable considerations require that the equitable title of such property remain with others. Typically fraud is a requirement for the establishment of a constructive trust, when the person who took legal title to the property did so as a result of a fraud brought upon the prior legal title holder.
(4) Express Trusts – Those specifically created by the grantor under a trust agreement or declaration of trust.
(5) Implied Trusts – Trust arising from particular facts and circumstances in which courts determine that although there was not any formal declaration of a trust, there was an intention on the part of the property owner that the property be used for a particular purpose or go to a particular person. For example, if a neighbor asks you to take care of her car for her when she is on vacation, and never returns, there was an implied trust, as she was not making you a gift of the car.
(6) Inter Vivos Trust – A trust that is created during the lifetime of the Grantor. A common type is a revocable living trust in which the grantor transfers title to property to a trust, serves as the initial trustee, and has the ability to remove the property from the trust during his/her lifetime.
(7) Irrevocable Trust – A trust that cannot be altered, changed, modified or revoked after its creation (absent extreme extenuating circumstances). Once a grantor transfers property to an irrevocable trust, the grantor can no longer take the property back from the trust.
(8) Living Trust – A trust created during the lifetime of a grantor which can be altered, changed, modified, or revoked. Typically the grantor is the initial trustee as well as the initial beneficiary of the trust, with his/her spouse and children as the ultimate beneficiaries of the trust.
(9) Resulting Trust – A trust that arises from, or is created by operation of law, when the legal title to property is transferred, but the beneficial interest is to be enjoyed by someone other than the person who got the legal title.
(10) Special Needs Trust – A trust that is established for a person who receives government benefits so as not to disqualify the beneficiary from such government benefits. Ordinarily when a person is receiving government benefits, an inheritance or receipt of a gift could reduce or eliminate the person's eligibility for such benefits. By establishing a trust which provides for luxuries or other benefits which otherwise could not be obtained by the beneficiary, the beneficiary can obtain the benefits from the trust without defeating his/her eligibility for government benefits. Often a special needs trust includes a trigger that terminates the trust in the event that it could be used to make the beneficiary ineligible for government benefits.
(11) Spendthrift Trust – A trust that is established for a beneficiary which does not allow the beneficiary to sell or pledge away his or her interests in the trust. A spendthrift trust is beyond the reach of the beneficiary’s creditors, until such time as the trust property is distributed out of the trust and placed in the hands of the beneficiary.
(12) Tax By-Pass Trust – A type of trust that is created to allow one spouse to leave money to the other, while limiting the amount of federal estate tax bite that would be payable on the death of the second spouse.
(13) Testamentary Trust – A trust that is included under the terms and conditions established in a will. Such trusts take effect after the death of the person making the will.
(14) Totten Trust – A trust that is created during the lifetime of the grantor by depositing money into an account at a financial institution in his or her name as the trustee for another. This is a type of revocable trust in which the gift is not completed until the grantor's death, or an unequivocal act reflecting the gift during the grantor's lifetime.
Many trusts themselves establish "sub-trusts." For example, a revocable living trust might establish a spendthrift trust and a tax by-pass trust upon the death of the first spouse. Trusts can be structured to handle a variety of situations, but careful drafting is essential to make the plan work.