James, I was talking with a friend at church she and her husband just made a family Trust. Is that different from a living trust? – Mary
Mary, while I can’t be sure without reviewing the documents that your friend executed, my hunch is that they have created a revocable trust. It is always a bit confusing, but estate-planning trusts can come in all sorts of names and serve all different purposes.
The revocable trust is often called by other names like: family trust or living trust. The important part of these type of trusts are that they are created for the purpose of avoiding probate. They also have the convenient feature of being revocable and amendable. Which just means that you as the creator of the trust can change your mind.
In contrast to this is the irrevocable trust. This trust too avoids probate, but the other advantage is that this trust can avoid creditors and Medicaid from access to the assets owned by the trust. As the name implies, the irrevocable trust is not free to amendments at the direction of the creators.
A special needs trust is another type of trust that can provide its own type of protections. In the case of a special needs trust, the beneficiary of the trust, happens to be receiving disability. In many cases this is a child who was born with a disability and will need state assistance the rest of his or her life. The special needs trust allows the family to pass money to this person without jeopardizing their monthly assistance and medical coverage.
One last type of trust is specifically for a particular type of asset, an IRA. Because IRA money is tax qualified, understanding how to pass along these accounts is important. When I have a client, whose heirs are “bad” with money they might explore an IRA trust. This way the grantor can control how the money is used after they pass.
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