Filed Under:Life Insurance, Life Planning Strategies

The Ins and Outs of Trusts



Some of the public does not know what a trust is. Others think it is merely for the rich. Many others have come to me and said something like “I need a trust,” as if it is aspirin or some panacea. What most of the public (and most non-estate planning attorneys) don’t realize is that there are roughly 65 different types of trusts. Some are more broad than others, some are quite specialized, and many share similar features. This brief overview should be a simple reminder for the seasoned practitioner, or a starting point for those new to the wonderful world of trusts.

See also: Estate Planning for Beginners

Mixing and matching 

For some estates and under certain circumstances, the family may be served by a variety of the aforementioned set-ups. For example, a revocable living trust is a grantor trust (income taxed to the grantor) and included in the grantor’s estate. Income will be taxed at the grantor’s personal rates, and the assets will enjoy a step up in basis upon the grantor’s death. The same grantor might also benefit from a Medicaid trust, which will often be a grantor trust (income taxed to the grantor). Yet, the grantor will have no control of the assets, and the assets may or may not be included in the grantor’s estate upon death. Usually, with a small enough estate, the assets will be included in the grantor’s estate (for federal estate tax purposes) to enjoy the step up in basis. The same family could also potentially benefit from a Medicaid trust (or other trust) that might be a grantor trust (taxed to the grantor) but is excluded from the estate. Non-appreciated assets would be more appropriate in that trust.

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Nichole Morford

Nichole Morford
Managing Editor

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