THE FOLLOWING IS A GLOSSARY OF THE TYPES OF TRUSTS:
Charitable Remainder Annuity Trust (CRAT):
A Charitable Remainder Trust in which the named beneficiaries receive a fixed payment of not less than five percent of the fair market value of the original principal over the course of a specified period after which the remaining principal passes to charity.
Charitable Remainder Trust:
A Trust in which individuals are named as beneficiaries to receive income for a period of time (as the lifetimes of the beneficiaries) after which the principal passes to charity.
Charitable Remainder Unitrust (CRUT):
A Charitable Remainder Trust in which the named beneficiaries receive payments of a fixed percentage and not less than five percent of the value of the trust assets as determined annually for a specified period after which the remainder passes to charity.
A Trust for the purpose of performing charity or providing social benefits. A Charitable Trust may have a specific charitable purpose without having specific charitable beneficiaries; it may exist in perpetuity without ever distributing outright to any particular charity.
An irrevocable Trust created to qualify gifts to the Trust for the annual, federal gift tax exclusion (currently $11,000). The word “Crummey” refers to a legal case and stands for the principal that in order for a gift to an irrevocable Trust to qualify as a gift of a present interest thereby allowing the donor to use his or her annual exclusion from gift tax, the Trust beneficiary must be given a certain amount of time (usually 30 days) to withdraw all or a portion of the amount gifted to the Trust.
A Trust established to benefit one’s spouse, children and/or other family members. Often used in reference to the By-Pass Trust discussed above.
Income Only Trust
A trust used in Medicaid Planning to enable someone to qualify for Medicaid benefits while providing money for support of the community spouse and special needs of the nursing home resident.
An irrevocable Trust established to won life insurance on a person, which, if properly administered will have the effect of keeping proceeds of the life insurance out of the insured’s estate at the time of death.
A Trust that cannot be revoked, modified or amended once it has been established. Irrevocable Trusts are often used in tax planning to get property “out” of a person’s estate so that it will not be subject to estate tax upon his or her death.
Trust established to hold the surviving spouse’s share of property upon the death of first spouse to die. In order to qualify for the estate tax marital deduction, this Trust must meet certain criteria that will ensure taxation in the surviving spouse’s estate. Generally, this type of Trust is used to defer estate tax until the second death as between a husband and wife. See QTIP Trust)
Recently made famous by Leona Helmsley who left $12 million to care for her dog. You can do something similar.
A Will used in conjunction with a Revocable Living Trust to dispose of any property owned by the decedent at time of death which was not transferred to the Trust. The Trust instrument contains detailed instructions relating to the distribution of the property. Like all Wills, a Pour-Over Will must be admitted to probate to be effective. The Pour- Over Will is executed as a safety “catch all” in the event the decedent did not successfully transfer all assets to the Revocable Trust during life.
Qualified Personal Residence Trust (QPRT):
An Irrevocable Trust established to hold title to one’s residence. The owner transfers ownership of the house to the Trust, retaining the right to reside in the home for a period of years.
Qualified Terminable Interest Property (QTIP):
In order fir property passed to a surviving spouse to qualify for the marital deduction from estate tax, thereby deferring the estate tax until the second death as between the Husband and wife, the property must be of a nature that will cause inclusion in the survivor’s estate, e.g. joint property. However, it is possible to put property is a Trust where the surviving spouse has use of the property but cannot control its ultimate disposition (useful for a second marriage). In order for this Trust to qualify for the marital deduction, there needs to be restrictions on who can benefit from the Trust during the spouse’s lifetime and what the spouse is entitled to receive. The Internal Revenue Code sets forth the requirements to qualify as a QTIP interest. Very often, a “Marital Trust” is also a QTIP Trust, referred to as a “Marital QTIP.”
Revocable Living Trust:
A Trust established by an individual, or a married couple, that becomes effective immediately upon establishment while the Grantor is still; it remains revocable and amendable during the lifetime of the Grantor. This type is used to avoid probate, minimize estate taxes, provide for management during periods of incapacity without the need for a guardianship and provides for ultimate distribution of the grantor’s estate.
Special Needs Trust/Supplemental Needs Trust:
A Trust established for a disabled person to provide supplemental support without disqualifying the beneficiary from eligibility for governmental assistance programs.
A Trust that is created for the benefit of someone who the Grantor thinks would otherwise squander all of the money. The beneficiary can be paid income from the Trust, but it cannot be reached by the beneficiary’s creditors.
A Trust established in a person’s Will. A Testamentary Trust only comes into operation after the Will has been probated and the assets have been distributed in accordance with the probate court order. In many states, Testamentary Trusts remain subject to the jurisdiction of the probate court.
Probate is the process whereby a judge makes sure that legal ownership of assets are distributed according to the terms of a person’s Will or if they do not have a Will, then according to the laws of intestacy of the state of residence where a person dies. Many people cringe when they think of probate, but if documents are drafted properly, probate can be avoided entirely or should be a straight forward and pain free process.
Most of us know someone who has Alzheimer’s, Multiple Sclerosis, ALS – Lou Gehrig’s disease, Parkinson’s or some degree of Dementia. The new Deficit Reduction Act will force families who have a loved one with one of these diagnoses to face estate-planning issues right now. We all know these dreaded diseases are progressive and that some degree of nursing home care is likely. Planning has to start right away.