Trusts are versatile instruments used in estate planning to manage and distribute assets according to specific terms. Each type of trust serves a unique purpose and is suitable for different situations.
Consider these two common types of trusts:
1: Totten trust
A Totten trust is a payable-on-death account. It provides a simple and flexible way to pass assets to a beneficiary upon the account holder’s death. It’s created when an individual designates a beneficiary on a bank account. It can be easily revoked or changed by the account holder at any time before their death.
The account holder retains complete control over the funds during their lifetime. They can spend, withdraw or add to the account without the beneficiary’s consent. Upon the account holder’s death, the funds in the account pass directly to the named beneficiary, bypassing the probate process.
2: Special needs trust
A special needs trust is designed to financially support people with disabilities without jeopardizing their eligibility for government assistance programs like Medicaid or Supplemental Security Income. Assets held in a special needs trust aren’t counted towards the beneficiary’s asset limits for means-tested government benefits.
A trustee manages the trust and disburses funds to pay for the beneficiary’s supplemental needs, which are not covered by government benefits. Funds from the trust can be used for various expenses like medical care, education, rehabilitation and personal care, enhancing the beneficiary’s quality of life.
Each trust type serves specific needs and should be chosen based on individual circumstances and goals. Individuals can work with someone familiar with their wishes and these estate planning tools to help determine the most suitable trust for their estate planning needs.