Understanding the Different Types of Trusts

Trusts are essential tools in estate planning, providing flexibility, control, and tax benefits. There are two primary types of trusts based on how they are established: living trusts and testamentary trusts. A living trust is created during the grantor’s lifetime, while a testamentary trust is created but not funded until the grantor passes away. Beyond these primary categories, several specialized trusts serve specific purposes and offer unique benefits.

Common Types of Trusts

• Charitable Trust: This trust allows individuals to donate funds to a charity after death, providing substantial tax benefits to the grantor’s estate.
• Irrevocable Life Insurance Trust (ILIT): This trust provides a way to pass life insurance benefits to beneficiaries tax-free, removing the life insurance proceeds from the grantor’s taxable estate.
• Credit Shelter Trust: Often used by married couples, this trust helps preserve wealth for the surviving spouse while minimizing estate taxes.
• Retirement Trust: This trust enables individuals to save for retirement without affecting their eligibility for government benefits.
• Supplemental or Special Needs Trust: Designed for individuals with medical issues or disabilities, this trust allows assets to be transferred in a way that does not compromise their eligibility for government benefits.
• Pet & Equine Trust: This trust ensures that pets are cared for after the owner’s death, covering maintenance costs and reducing the burden on future caregivers.

Revocable Trust

A revocable trust is a popular estate planning tool that offers flexibility and control. Assets transferred into a revocable trust can avoid probate, simplifying the estate settlement process. During their lifetime, the grantor can name themselves as the trustee, retaining control over the assets. This type of trust allows the successor trustee to access assets, pay debts, and distribute the remainder to beneficiaries more quickly than through probate.

Another advantage of a revocable trust is privacy. Unlike wills, which become public records, the terms of a revocable trust remain private. A pour-over will is often recommended in conjunction with a revocable trust. This will, filed with the Clerk of Court, names the trust as the beneficiary, ensuring any assets not titled in the trust at the time of death are transferred into it.

Irrevocable Trust

Irrevocable trusts, once established, cannot be modified by the grantor. The primary advantage of irrevocable trusts is that the assets are removed from the grantor’s taxable estate, reducing estate taxes. Control and management of the assets in an irrevocable trust are handled by the named trustee, not the grantor. This type of trust can offer greater asset protection and tax benefits but requires relinquishing control over the assets.

Choosing the Right Trust

Deciding between a revocable and an irrevocable trust depends on your specific estate planning goals and needs. Revocable trusts offer flexibility and control, making them suitable for many individuals. In contrast, irrevocable trusts provide significant tax and asset protection benefits but require giving up control over the assets.

Why Choose Crosswhite Law?

If you are considering establishing a trust as part of your estate plan, it is critical to have an experienced attorney assist you in the creation and implementation of the trust. Ensuring that the trust is created and set up correctly maintains its integrity and ensures that your wishes are enforceable. At Crosswhite Law, our North Carolina estate planning attorneys have extensive experience in creating tailored trust solutions to safeguard your assets and provide for your loved ones. Trust Crosswhite Law to provide the expertise and guidance you need to make informed decisions about your estate plan. To schedule a consultation with one of our experienced attorneys, call us at (704) 445-3085 or complete our online consultation request form.