There are many different trusts that can be used when you are devising your estate plan. A layperson would have no reason to understand all the options that exist, and this is why legal counsel is invaluable.
We endeavor to explain the various devices that can be utilized, and in this post, we will demystify five trusts that many people have never heard about.
Secret and Semi-Secret Trusts
The secret trust is usually not recommended by attorneys because of the potential for estate litigation, but it is an interesting device. This type of trust can be used by a grantor that wants to keep the family from knowing about an inheritance that they will be leaving to someone.
For example, let’s say that a man wants to leave a bequest to a longtime paramour. He leaves an inheritance to his brother in his will, and the family does not think anything of it.
However, his brother has agreed to use the inheritance to fund a secret trust for the benefit of the paramour. There are also semi-secret trusts. The imperative to create the trust would be revealed in the will, but the details would remain secret.
These situations often result in messy litigation because the family members that are being kept in the dark can question the validity of the so-called secret will in court.
A Totten trust can be used to achieve the same objective without the risks. When you open up a bank account, you can add a beneficiary. This is sometimes called a payable on death account, and the accounts are alternately referred to as Totten trusts.
If you create one of these accounts, the beneficiary would obtain a death certificate after your passing. It would be presented to the institution, and the funds would be released if everything is in order.
The transfer would not be subject to probate. This is a legal process that is a matter of public record, so the probate-free transfer would be strictly confidential.
Executives that are bound by securities regulations have to be concerned about conflicts of interest and insider-trading. Someone that is in this position could convey their assets into a blind trust.
The trustee would manage the assets, and the grantor would not have any knowledge about the actions of the trustee, and they would have limited contact. These trusts are also used by candidates and people who hold political offices.
A funeral trust can be utilized to pay for your final expenses in advance. You enter into an arrangement with a reputable funeral home, and you fund the trust while you are still living. After your death, the assets would be used to pay for your funeral expenses.
The last trust and we will look at here is the rabbi trust, and you do not have to be a rabbi to use this type of trust. It got the name because the beneficiary was a rabbi when it was used with IRS approval for the first time.
An executive can negotiate a compensation package that includes employer contributions into a rabbi trust. The assets would accumulate in a tax-deferred manner, and this would be advantageous if the beneficiary accepts distributions when they are in a lower tax bracket.
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You are here because you are interested in learning more about estate planning, and we have some fantastic in-person opportunities coming up in the near future.
We are conducting a series of seminars, and you will come away with a more complete understanding of the process if you attend one of these sessions. There is no charge, and you can see the dates and obtain registration information if you head over to our seminar page.
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Our doors are open if you are ready to work with a Glastonbury, Connecticut estate planning lawyer to put a plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at 860-548-1000.