In the world of finance, there are quite a few things that can not only be confusing to an outsider but can also come with varying different types to understand as well. Trust is no different. The word can be thrown around a lot when it comes to big sums of money, but not all trusts are created equal, and there’s a bit to know when differentiating the types. Here’s how to tell the difference.
What Exactly Is a Trust?
Before getting into the different types of trusts that are out there, there is a baseline level of knowledge that’s needed first. And it surrounds understanding what trust is in the first place. A trust can be thought of as a metaphorical safe in many ways. But it’s in document form. A trust is designed by a trustor. The name can also be interchanged with the grantor. The grantor is the one that issues the sum of money and wants to direct it to someone else down the line. That someone else is known as the beneficiary. The person who holds onto the trust before that time is known as the trustee.
A living trust is one of the most common trusts out there today. It is also pretty straightforward in how it works. A living trust appoints a trustee to manage and oversee the assets for the beneficiary. This all happens while the trustor is still living, hence the term living trust.
An irrevocable trust unlike a living trust is a less favorable option for some as it prohibits the changing of the document later on. Once an irrevocable trust is assigned, there is no changing it later on. The terms are final. The reason for this type of trust includes things like creditor protection, tax, and Medicaid planning
A charitable trust is designed to help a charity or non-profit receive some of the assets in a trust. This type of trust is designed while the trustor is living and is made to help benefit both parties involved, especially the charity.
An insurance trust is a bit different from the other types of trusts in the way that it purchases a life insurance policy on the insured’s life so that the insurance policy death benefit doesn’t apply to the insured’s taxable estate. This type of trust also falls under the irrevocable trust category, so nothing could be altered later.
Do you need the law on your side when it comes to business and commercial services, estate planning services, general counsel, or real estate? Call the Law Office of Kenneth J. Nota today so we can get you the representation that you need at 401-206-9056. Our office number is 941-309-5270. We’re also located at 1990 Main Street, Suite 750 Sarasota, Florida 34236.