The general purpose of any trust is to manage and preserve property (typically money) for the benefit of one or more persons. However, a trust is usually set up for a special purpose that meets your specific needs or the needs of your beneficiaries. You can use a trust for a variety of special purposes including minimizing taxes, protecting assets from being squandered, or preserving a person's right to receive government benefits.
Crummey Trusts Qualify For the Annual Gift Tax Exclusion
To reduce or eliminate estate taxes that may be incurred by your children when you pass, you are entitled to gift a certain amount of money to your children each year without having to pay a gift tax. However, in order to qualify for the gift tax exclusion your child must have a "present interest" in the gift. In other words, the child has the right to spend it. This may not be a desirable situation if your children are minors or have not yet reached the level of maturity needed to handle sizable cash gifts. A Crummey Trust solves this dilemma by allowing you to place the gift in a trust which is primarily designed to preserve the money for your children's future use.
Totten Trusts Provide a Gift to Your Heirs
The simplest form of trust to establish is a Totten Trust with your financial institution, such as a bank or credit union. The only requirement for this type of trust is to ensure that the name on the account is properly titled with your name and the name of your beneficiary. For example, a Totten Trust could be titled as "John Smith in trust for Jane Smith." During his lifetime, John Smith deposits funds into the account as he chooses and has complete control of the funds. When he passes, all of the funds in the account go to Jane Smith.
A Spendthrift Trust Protects Trust Assets
A spendthrift trust is any trust that includes a special provision to protect a beneficiary from squandering the trust assets. The provision gives the trustee the power to limit the distribution of trust funds to the beneficiary in situations where the funds will simply go to the beneficiary's creditors or the beneficiary is likely to waste the funds. The provision can also be used to prevent the trust assets being lost due to a beneficiary's divorce.
A Special Needs Trust Preserves Rights to Government Benefits
Your property and income can be placed in a trust and you will still be eligible for Social Security Income and Medicaid benefits, so long as the trust is a "special needs trust" or "supplemental needs trust." This type of trust can be set up privately or by court order but in either case requires that someone other than you be appointed to act as trustee and manage the property. You can receive government assistance for basic living needs (medical, housing, and food) while the trust pays for other needs such as recreation and education.
A Trust Lawyer Can Help
The law surrounding creation of trusts to accomplish special purposes is complicated. Plus, the circumstances of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a trust lawyer.