Trusts are confusing, because they have so many names and purposes. The word “trust” basically means to trust somebody to hold assets.
The most common use of the word in estate planning regards revocable trust. This may also be known as a living trust, a loving trust, a revocable living trust, or other variations. It is created while the grantor, or settlor, is alive. It is called revocable because the grantor can revoke or amend it. Usually, the grantor is the trustee at the beginning. It will name one or more successor trustees. It will name beneficiaries, just like a will does. If the trust is properly funded with the grantor’s assets, when the grantor dies, the trust will continue, operated by the successor trustee, and holding the same assets. Then the successor trustee will distribute. A revocable trust becomes irrevocable at the grantor’s death.
An irrevocable trust, on the other hand, cannot be revoked or amended after it is made. Generally, an irrevocable trust is created to make a lifetime gift to a beneficiary. The grantor no longer owns what is gifted in this manner. An irrevocable trust is usually used to remove assets from one’s estate for estate tax purposes, but may also be used for protection. There are other kinds of irrevocable trusts that are sometimes used in Medicaid planning.
Florida does not have a self-settled asset protection trust. Thus, if a person put his or her own assets into any type of trust, and retains use and/or control, the trust assets are not protected from the grantor’s creditors. Some other states do not have such trusts. If one makes a trust with spendthrift provisions for another person, it can offer asset protection for the third party beneficiary.
One can make a trust inside a will. A trust that arises from a will is usually known as a testamentary trust, because it is created in a last will and testament. Probate of the will creates the trust. It is not a living trust, because it does not arise until the testator has died.
There are other types of trusts, and other names of the above trusts. Before creating a trust, one should consult our attorneys to discuss the pros and cons, and to determine what type of trust is indicated in a particular situation.