What Are The Types of Trusts in California?
There are various types of trusts that people include in their estate planning. Countless factors play a role in which type of trust or trusts someone may choose including their financial needs, tax advantages, asset protection from creditors, whether they have children, and many more. It is often difficult for someone to determine which is best for their own situation. What are the types of trusts in California? Those with questions should feel free to visit with Kushner Legal at (310) 279-5166.
What Is a Trust?
The person who creates a trust is referred to as the trustor or grantor. When someone creates a trust, another third party (trustee) holds the trustor’s assets in support of a designated beneficiary or beneficiaries. It is a legal arrangement generally used for the purpose of conveying assets to beneficiaries in estate planning. While many people may have a Last Will and Testament, a Living Trust works basically the same way.
Common Types of Trusts in California
There are many types of trusts, and some are more commonly used than others depending on each individual’s unique needs. Some of the most common include:
- Revocable Trusts
- Irrevocable Trusts
- Living Trusts
- Testamentary Trusts
- Special Needs Trusts
- Asset Protection Trusts
There are others including charitable, insurance, spendthrift, and joint trusts. A skilled California estate planning attorney may be able to help someone determine which type of trust is best for their needs.
Revocable and Irrevocable Trusts
Often referred to as a Living Trust, a Revocable Trust allows the grantor to make changes or revoke the trust at any time and for any reason providing they are mentally capable and still living.
Irrevocable Trusts are thought by some to be a bad idea, however they can be beneficial in some circumstances such as for protection of assets from creditors, or for tax purposes. This type of trust requires the consent of all beneficiaries before it can be modified in any way.
According to the American Bar Association, a Testamentary Trust is created by a will with provisions contained in the will. Unlike Living Trusts, Testamentary Trusts do not become valid documents until the time of the grantor’s passing. It is important to note that Testamentary Trusts do go through the probate process, which is a process many families want to avoid. Those with questions may want to consider visiting with Kushner Legal.
Living Trusts are basically the same thing as Revocable Trusts and are established by the grantor during their lifetime. Living Trusts are not designed to protect assets while the grantor is still living, however they do allow beneficiaries to avoid the messy and often costly process of probate. While creditors will have a more difficult time accessing assets that are in a Living Trust, it is not impossible they could do so.
Special Needs Trusts
Special Needs Trusts are designed to provide for life-long care of those who are younger than 65 and are physically or mentally disabled. This type of trust provides for the financial needs of the disabled person without putting their Medicaid, SSI or other supplemental government aid in jeopardy. Depending on the circumstances and need there are three primary types of these trusts – first-party trusts, third-party trusts, and pooled trusts.
Asset Protection Trusts
According to the American Bar Association, this type of trust is generally established by high net worth individuals and those employed in high-risk occupations such as real estate developers and doctors. An Asset Protection Trust can be used in place of prenuptial agreements and are effective for protecting assets from creditors, although an Irrevocable Trust is the most effective for this purpose. Asset Protection Trusts are often expensive to establish compared to other trusts.
Primary Benefits of Trusts
When estate planning there are several reasons individuals consider establishing a trust. Some of the primary benefits of these estate planning tools include:
- Tax advantages
- Control of assets
- Bypassing the probate process
- Protection of assets from creditors
- Naming of children as beneficiaries
There are many advantages of creating trusts in estate planning in addition to the above. Some factors that impact the type of trust include wealth, children, marriage, real estate, family businesses, second marriages, and more.