What Is A Trust?

There are two ways a Trust can be drafted - one as a Revocable Trust and second as an Irrevocable Trust.

What Is a Revocable Trust?

Very simply put, a Revocable Trust is one that may be modified during the Trustmaker's life. As stated above, in most cases, the trustmaker, trustee and beneficiary of a revocable trust are the same people.

What Is a Irrevocable Trust?

The difference between a Revocable Trust and an Irrevocable Trust, is that the Irrevocable Trust cannot be modified or changed. In most cases, the trustmaker cannot act as a trustee if he or she forms an irrevocable trust. The most common use of an irrevocable trust is to move assets out of the trustmaker's name to the next generation for their use and enjoyment, which in turn reduces the value of the trustmaker's estate for estate tax purposes.

You cannot take your property back after you transfer it into an irrevocable trust. The trustmaker reserves the right to dissolve or change his revocable trust at any time, but an irrevocable trust is, for the most part, forever.

Other Types of Trusts and/or Trust provisions that can be added to your Trust:

Bypass Trusts: Also called the credit shelter trust, marital trust, and family trust, this bypass trust is designed to help a married couple avoid estate taxes. Each person may pass to heirs a certain amount of money at death with no estate tax. The bypass trust can increase this. Because tax laws vary year to year, it is important to speak to an estate planning attorney to make sure you have current information.



Special Needs Trusts: This trust provides financial support to a person who is unable to manage his or her own financial affairs. To avoid the risk of interfering with the support that's otherwise available from social services, the trustee may not want to use these assets for housing, clothing, or food.

Spendthrift Trusts: Instead of leaving an heir a large sum of money that he or she may quickly squander, you place that inheritance into a trust. The trust would then distribute the inheritance to the heir later, perhaps when the heir reaches a certain age, or in the form of an allowance, or for specific expenses, such as college or medical expenses. Such can also create a shield against creditors.

Life Insurance Trusts: Put your life insurance in the name of your trust! For high net-worth individuals, owning their own life insurance in their personal name is a huge mistake because the death benefit is subject to estate taxes. To solve this problem, have a life insurance trust own your policy or have the beneficiary changed to your Trust. The trust would be the beneficiary, and your heirs would be the beneficiaries of the trust. There is an additional benefit of a life insurance trust being created. Instead of beneficiaries automatically getting the insurance proceeds immediately upon your death, you can instruct the trust to distribute the money to the heirs more slowly (see Spendthrift Trust above). If you do not currently have life insurance, we highly recommend it.

Charitable Remainder Trusts: If you plan to donate assets to a charity after your death, you may find it beneficial, instead, to donate to a charity now. By doing so, you can actually get a tax deduction right now for your gift. You also can name yourself as the income beneficiary (giving yourself an annual income) and the charity gets what's left after your death; tax-free, just as you've intended. If you're concerned that making the gift to the CRT denies your children their inheritance, you can buy a life insurance policy equal to the size of your gift, naming your children as beneficiaries of the insurance, using some of the trust's income to pay the policy's premiums (see Insurance Trust above). We can help you locate the proper life insurance policies that meet your goals.

Miller Trusts / Qualified Income Trusts (QIT): The type of trust is used to continue to retain income and still legally qualify for Medicaid's income caps. As of January 1, 2020, the Medicaid Income Cap in Florida is currently $2,349 per month. Consequently, if your gross income exceeds the Medicaid Income Cap, a Miller Trust, also known as a quantified income trust (QIT), must be drafted to qualify for Medicaid. Most noteworthy, if you exceed the Florida Medicaid income caps and you do not have a QIT / Qualified Income Trust / Miller Trust (all the same thing) YOUR MEDICAID APPLICATION WILL BE DENIED.

QTIP Trusts: Say you die leaving a spouse, minor children, and assets. Further, say your spouse remarries, then dies. Result: Your spouse's new spouse gets all your money, and your children are left with nothing. Unfortunately, we have seen this happen too many times. To avoid this scenario, consider the Qualified Terminal Interest Property Trust. Instead of leaving your assets to your spouse when you die, you leave your assets to the QTIP trust. The trust gives income to your surviving spouse for his or her lifetime. But when your spouse dies, the assets remain in the trust for the benefit of your children. Because your spouse doesn't directly own the assets, he or she cannot convey them to a new spouse and his or her heirs.

Generation-Skipping Trusts: Such trusts are truly intended for very wealthy estates. This type of trust can preserve your assets for several generations while avoiding estate taxes. You can fund a Generation-Skipping Trust with the same amount as the bypass trust for the benefit of your grandchildren and great-grandchildren, and the assets will appreciate free of income and estate taxes. Such assets can also be protected from creditors.

Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as tax or legal advice.