A trust is an often-underutilized estate planning tool that allows for clear and specific stipulations regarding the handling of a Massachusetts individual's estate and asset distribution, while often minimizing taxes and administrative expenses. With terms like living trust, revocable and irrevocable trust and more, though, the vast array of options and legal phrases may feel overwhelming. An estate planning attorney can offer more detailed information, but here are some quick summaries that may help clarify the basics.
Living trusts and revocable trusts are different terms for the same thing. These trusts -- when properly funded --help individuals avoid the probate process. Revocable living trusts are often designed to protect an inheritance from things like bankruptcy, creditors and divorce, as well as to save estate taxes. An AB trust is a specific type of revocable trust; an attorney can help explain more fully, but these are funded by a deceased spouse's interest in trust assets as well as the surviving spouse's share, and that surviving spouse decides upon the distribution.
An irrevocable trust, once executed, cannot be changed or revoked, and any assets put into it cannot be taken out during the trustmaker's lifetime, hence the term "irrevocable." Typically, these are established to help avoid estate taxes on life insurance death benefits. Additionally, they are sometimes intended to transfer assets out of the trustmaker's name so they are not subject to Medicaid and cannot be used toward future long-term care expenses. Irrevocable trusts are useful for preserving land and houses for beneficiaries.
Yet another type is a Qualified Terminable Interest Property Trust. While these do not provide tax-savings benefits, they are useful in second marriages to ensure a deceased spouse's beneficiaries do not get disinherited by the surviving spouse, yet still allow for trust asset marital deduction qualification. Massachusetts individuals wishing to know more about how to make this kind of trust work with the marital deduction tax law, or who believe a revocable or irrevocable trust would fit their needs, may benefit significantly from discussing these options and others with an experienced estate planning attorney.
Source: greenbaypressgazette.com, "A guide to types of trusts", Carissa Giebel, Sep. 5, 2017