ESTATE PLANNING CINCINNATI: WHAT TYPE OF TRUST IS RIGHT FOR YOU? Posted on – 05/23/2017 by PJK If you thought that all trusts were created equal, you might want to think again. There are many different types of trusts and some are better suited for certain situations than others. If you are looking to set up a trust, the following is a summary of some of the most common types of trusts we utilize in our Cincinnati Estate Planning practice. Revocable Living Trusts Revocable Living Trusts are the most widely utilized trusts for estate planning.  Many people set up revocable living trusts to avoid probate upon their death. However, a revocable living trust can also allow a client to provide for themselves and their dependents in the event they become incapacitated.  Revocable Living Trusts allow you to change or revoke your trust if you wish.  You, as the grantor, can establish the trust and control it. You may even serve as trustee during your lifetime. If you become incapacitated, the trustee (or successor trustee) will ensure uninterrupted management of your financial affairs according to the terms you established when you set up the trust. And when you are gone, the trustee will distribute the trust assets, which will not be subject to the delays and expense, not to mention potential public review, of the probate process. A revocable living trust does not avoid estate taxes because you still own the property, but it can help reduce expenses. It is also important to note that a revocable living trust would NOT be the right trust for Medicaid Planning purposes or for protecting assets for creditors or lawsuits. Irrevocable trusts An irrevocable trust is just what the name implies and cannot be revoked by the grantor once it has been created. Because it is irrevocable, this type of trust may provide tax benefits that a revocable living trust cannot by reducing the estate’s tax liability. It can also provide income to your children, grandchildren, or other heirs as you instruct both during your lifetime and after your death. You specify the beneficiaries of the trust, how it will function, and who will serve as trustee.  There are different types of irrevocable trusts. For Medicaid Planning or asset protection purposes, an irrevocable trust can be an important planning tool. Irrevocable Life Insurance trusts An irrevocable life insurance trust lets you reduce the size of your taxable estate with a trust which purchases a life insurance policy on your own life. The trust is the owner of the policy and pays the life insurance premiums from money you gift to the trust. The premium payments that you contribute to the trust may qualify for the annual gift tax exclusion amount if certain tax rules are properly followed.  The trust is also the beneficiary of the policy and your heirs are the beneficiaries of the trust. When you die, the policy’s death benefit is paid to the trust, and the trust can be distributed to the named beneficiaries in the manner you choose. Charitable trusts Through a charitable trust, you may maximize the impact of your giving. With a charitable remainder trust (CRT), you reap the benefits of reducing your taxable estate while retaining an income stream for yourself, your spouse, or family. When the trust ends after a specified time or when the last beneficiary has died, the remainder of the trust passes to the qualified charity or charities you designated.  Meanwhile, you get the benefit of a tax deduction when the trust is created. A charitable lead trust (CLT) is similar to a CRT, but in reverse.  In this arrangement, the charity receives the income stream for a period of years, and at the end of that time, the remainder reverts back to your heirs. Special Needs Trusts A Special Needs Trust is a fund established by parents or other family members to provide for the well-being of their disabled family member while preserving any federal or state benefits the individual may be eligible for. Testamentary trusts Testamentary trusts are created in a last will and testament, and the terms of the trust go into effect when the grantor passes away.  Note that because a testamentary trust is part of a will, the assets must go through probate.  Therefore, I usually recommend that my clients establish a Revocable Living Trust, which allows them to avoid probate. Conclusion These are just a few of the most commonly used trusts. There many options available and each individual situation may necessitate a different type of trust. The laws on trusts are complex, and you will benefit from the assistance of an experienced estate planning attorney to advise you and to set up the trust.  If you have questions about the best trust for you or a loved one, please contact our office. Paul Kellogg is an attorney in Cincinnati with the Phillips Law Firm, Inc. Paul’s practice focuses on providing comprehensive estate planning and probate services to families and business owners, as well as serving as outside general counsel to entrepreneurs and businesses where he provides guidance and advice on a wide variety of transactions and disputes.  He can be reached at (513) 985-2500 or via email at [email protected]   Please explore Paul’s other articles on estate planning and business on the Phillips Law Firm Blog page.  The article is for educational and informational purposes only and does not constitute legal advice. Anyone contemplating taking legal action is urged to obtain proper legal advice from an attorney licensed in your particular jurisdiction.     For an initial consultation contact us at (513) 985-2500 or email us at [email protected] or click Chat Now!® to get started immediately.