Types of Trusts in Montgomery County

If you are considering an estate plan to protect your assets, you may feel overwhelmed by the different types of trusts in Montgomery County. However, a knowledgeable trusts lawyer can help you understand the various options available and the benefits and limitations of each type. With their help, you can make sure your assets are adequately protected.

Testamentary Trusts

A testamentary trust is a trust created within the language of an individual’s last will and testament. While it is created during a person’s lifetime, it is not funded until after they have passed away. This is a common type of trust in Montgomery County for individuals who would like to provide for minor children or grandchildren. It is also a common trust for individuals who would like to include some special needs provisions for a loved one.

Another common testamentary trust in Montgomery County is what is called a bypass trust. This is a trust designed to hold assets for a surviving spouse and can sometimes be used to maximize the Montgomery County and/or federal estate tax exemption. It is not uncommon for individuals using a will to incorporate a testamentary trust within the provision of that document.

Freestanding Trusts

There are several types of freestanding trusts. Generally, a freestanding trust is a trust that is created and funded during the lifetime of an individual. Some of the more common types of freestanding trusts for individuals are revocable and irrevocable living trusts.

Revocable Living Trusts

A revocable living trust is a freestanding trust created and funded during an individual’s lifetime. Some of the common reasons that a revocable living trust is created are to avoid probate and multiple jurisdictions, to provide some level of privacy to an individual’s estate plan, and to provide streamline management for assets.

A revocable living trust uses the grantor’s tax ID while the grantor is living. At the decedent’s death or the decedent’s incapacity, the revocable living trust becomes irrevocable, meaning that the trust can no longer be amended, revoked, or changed. While the trust is still in its revocable status, a settlor can modify it, change it, revoke its entirety, put assets into the trust, and basically use the trust however they want.

During the settlor’s lifetime, the assets of a revocable living trust are often held for the settlor’s benefit. After death, the trust will include provisions with regard to how the trust assets will either continue to be held in further sub-trusts or be distributed from the trust to the named individuals.

One of the common misunderstandings about a revocable living trust is that it is a tax-stating vehicle. The document and the provisions are tax mutual, meaning from an income tax perspective, all of the income is taxed either to the settlor during their lifetime or the settlor’s estate after death and the creation of the revocable living trust is not, as according to either the Montgomery County or the current federal estate tax.

Irrevocable Trusts

As stated above, an irrevocable living trust is a freestanding trust that, once created, generally cannot be amended, revoked, or changed. However, the current Uniform Trust Act does provide for some modifications in certain situations.

One of the common reasons to create in an irrevocable living trust is to pass assets outside of the settlor’s estate during their lifetime while the asset has a smaller value. When this happens, it is gifted and considered complete. That means that, regardless of how much that asset grows, it may not be subject to a real estate tax.

One of the more common types of irrevocable trust that individuals are familiar with is an irrevocable life insurance trust or an ILIT. It is not uncommon for an ILIT to be incorporated as part of an estate plan.

What Are Charitable Trusts?

There are several different types that are created typically to provide assets to a charitable institution. Depending on the type of charitable trust, it will allow distributions to go to charity and the remainder to go to the named beneficiary.

Options for Someone with Special Needs

A special needs trust is a trust created for the benefit of an individual who is currently facing or projected to face some special needs issues. The two primary categories of a special needs trust are third-party special needs and self-settled special trusts.

Third-party special needs trusts are when another individual or family member sets up a trust with the funds of a third person, meaning a parent listed for a child, a brother, a sister, a child, or a parent. Generally, third-party special needs trusts are created to be supplemental trusts, meaning they provide assistance but do not interfere with any means-tested programs or benefits that an individual is receiving.

On the other hand, a self-settled special needs trust is a trust created by an individual for himself or herself. In Montgomery County, there are specific requirements for self-settled trusts. For example, the trust must be approved by the Montgomery County attorney general.

Bypass Trusts

A bypass trust is a trust that is commonly created in both wills as a sub-trust that typically allows an individual to provide for his or her spouse. It is commonly used to maximize the Montgomery County estate tax exemption. The bypass trust often is incorporated into an estate plan to be used for that specific person.

Discuss the Types of Trusts in Montgomery County

The type of trust that will work for you depends on your specific goals. A well-versed professional can help you understand the different types of trusts available in Montgomery County and determine what is right for you. Call today for a consultation to learn more.