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Trust Types

A trust can be an important tool for anyone looking for help managing money and property during his or her lifetime. A trust can also be a good tool to use in planning what will happen to your money and property when you pass away because a trust can allow your family to inherit from you without having to go through the long and expensive probate process. Finally, trusts can provide various tax benefits, including lowering your overall tax liability in some circumstances. FindLaw's Trust Types section contains in-depth information on the different types of trusts as well as a broad overview of trusts and the laws that govern them.

Living Trusts

Living trusts are trusts that are created during the lifetime of the person who set up the trust – usually referred to as the grantor or settlor. The grantor sets up an arrangement in which a person (the trustee) manages and administers the trust property for the benefit of a beneficiary. The most common reason for a living trust is to avoid the probate process, which is required to administer a will. A living trust is a good option for a parent who wants to provide some income and security for his or her child, but doesn't believe that the child could handle the full amount of property responsibly. Finally, a living trust can also help an individual to reduce taxes and regulate the use of his or her assets, which can be important if the settlor ever becomes incapacitated.

Tax Benefits of Trusts

Most trusts come with various tax incentives. There can be reduced estate taxes, for example, for more complicated living trusts. Another type of trust that has tax benefits is the AB or marital bypass trust. The AB trust is only available to married couples and it allows them to maximize their federal estate tax exemption. The basic idea is that upon one spouse's death, his or her property goes into an irrevocable trust (trust A) and the surviving spouse's share goes into trust B. The irrevocable trust can be used for the benefit of the surviving spouse, even though he or she doesn't actually own the property. Once the surviving spouse dies, the couple's children are able to receive the property from both trust A and trust B without having to pay taxes.

Charitable trusts – the most common being a charitable remainder trust – also provide tax benefits. In a charitable remainder trust, a settlor sets up a trust and puts the money he or she wants to give to charity, which must be approved by the IRS, in that trust. The charity serves as the trustee and pays a portion of the accumulated income of the trust funds back to the grantor, or other named person. The trust terminates upon the grantor's death and the property donated will go to the charity. One major benefit to the grantor's heirs is that the money and property in a charitable trust is not included when determining the deceased person's estate tax.

Hiring a Lawyer

A trust involves a lot of paperwork and can be difficult to set up properly. Trusts have various rules and requirements in order to be valid, and an experienced estate planning attorney would make sure you comply with the necessary rules. In addition, an attorney can help you choose and set up the type of trust that will best fit your needs.

Learn About Trust Types