One of the most common tools used when creating a comprehensive estate plan is a trust agreement. Most people are familiar with the concept of a trust; however, the details can be a bit murky. If you are considering the use of a trust in your estate plan, deciding on which type of trust is best for your needs and goals is the first step toward incorporating a trust into your plan. Although it is always best to consult with your Illinois estate planning attorney before you make a firm decision about the type of trust you need, it may also be beneficial to learn more about the different types of trusts available from the Illinois trust attorneys at Hedeker Law, Ltd.
Testamentary Trusts
A testamentary trust is a trust that doesn’t activate until the death of the Settlor through a provision in the Settlor’s Last Will and Testament. Because a testamentary trust is activated by a provision in a Will, it is always revocable up to the time of the Settlor’s death because a Will is always revocable.
Living Trusts
Formally known as an “inter vivos” trust, a living trust is a trust that is activated during the lifetime of the Settlor once all the formalities of creation are in place. A living trust can be either revocable or irrevocable.
Revocable Trusts
A revocable trust is one that can be modified, terminated, or revoked at any time, and for any reason or without providing a reason, by the Settlor. A revocable trust can be a testamentary or living trust.
Irrevocable Trust
An irrevocable trust is one that cannot be modified, terminated, or revoked by the Settlor once the trust is activated. In most states, a court can modify or terminate an irrevocable trust under certain conditions; however, because that requires a court order it is best to consider an irrevocable trust to be one that you cannot change once it is activated. An irrevocable trust is always a living trust.
Constructive Trusts
A constructive trust is an implied trust. An implied trust is established by a court and is determined from certain facts and circumstances. The court may decide that, even though there was never a formal declaration of a trust, there was an intention on the part of the property owner that the property be used for a particular purpose or go to a particular person. While a person may take legal title to property, equitable considerations sometimes require that the equitable title of such property really belongs to someone else.
Asset Protection Trusts
An asset protection trust is typically an irrevocable trust that is designed to protect your assets from claims of future creditors. The trust remains irrevocable for a specific number of years after which time the assets revert to the Settlor if there are no current creditor claims or threats. During the time that the trust is irrevocable, the Settlor cannot be a beneficiary of the trust though for the assets to remain out of the reach of creditors.
Special Needs Trusts
A special needs trust is a specialized trust that allows you to gift assets to a child with special needs without jeopardizing the child’s eligibility for much-needed state and federal assistance programs such as Medicaid and/or Food Stamps (TANF).
Charitable Trusts
Charitable trusts benefit an organization or the public in general. Charitable lead and charitable remainder trusts combine a charitable and non-charitable beneficiary into one trust. Along with fulfilling a philanthropic goal, charitable trusts are also frequently used to help lower an estate’s exposure to federal gift and estate taxes.
Spendthrift Trust
A spendthrift trust is a trust that is established for a beneficiary and which does not allow the beneficiary to sell or pledge away interests in the trust. It is protected from the beneficiaries’ creditors, until such time as the trust property is distributed out of the trust and given to the beneficiaries.
Totten Trust
This is the name used for a type of trust created by a “Payable on Death (POD)” (or similar) beneficiary designation on an account. It is, in essence, a revocable trust in which the gift is not completed until the Settlor’s death or an unequivocal act reflecting the gift during the Settlor’s lifetime. The assets held in the account are automatically transferred to the named beneficiary upon the death of the Settlor; however, the beneficiary has no ownership interest in the assets during the lifetime of the Settlor and the Settlor can always revoke the designation up to the time of death.
Contact Illinois Trust Attorneys
For more information, please download out FREE estate planning worksheet. If you have additional questions or concerns regarding trust agreements, or if you are ready to get started on your trust, contact the experienced trust attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.
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