Trusts have become a very useful tool in the estate planning field; in fact, you may be considering one yourself. If you are considering establishing a trust, you should be aware of the different types that exist.
Revocable inter vivos trust
This is the most flexible of all the trusts. The usual setup for this type of trust involves the trustor (i.e., trust’s creator) transferring legal title to property to the trustee (i.e., person entrusted with looking after the property). The catch is that the trustor retains the power to revoke, alter, or amend the trust, as well as the right to income from the trust property during the trustor’s lifetime.
Discretionary v. Mandatory trust
You can split trust into two categories: mandatory trusts and discretionary trusts. With a mandatory trust the trustee has no choice about what to do with the income, and must distribute it all. A discretionary trust, however, grants the trustee some leeway over whether to pay the income, the principal or both. Between the two types this one provides the greatest flexibility.
The “honorary trust” is a relatively new invention and is primarily – although not exclusively – used by people who want to provide for their pets, should their pets outlive them. It is called an honorary trust because the transferee has no legal obligation to carry out the trust’s purpose, and, if the transferee declines, the property must be returned to the trustor.
Contact an experienced and qualified estate planning attorney for more information about trusts.