Understanding the types of trusts
Choosing a trust may seem like a daunting task. Gaining a better understanding of the types of trusts available and comparing the benefits of different trusts, can help you select a trust with confidence. Of course, you can also talk to a MassMutual Trust Consultant to learn more about your options.
We offer four main types of trusts:
- Irrevocable Life Insurance Trust
- Revocable Living Trust
- Special Needs Trust
- Charitable Remainder Trust
|Assets Avoid Probate||Reduce Estate Taxes||Transfer Wealth to Family||Charitable Giving|
|Irrevocable Life Insurance Trust|
|Revocable Living Trust|
|Special Needs Trust|
|Charitable Remainder Trust|
You may have life insurance as part of your current estate plan. Like many of us, you probably purchased life insurance for the security it provides - knowing your family will have money to meet financial needs if something happens to you. Life insurance benefits can also provide cash to pay estate taxes or other estate settlement expenses.
Pass on life insurance benefits to your family - tax free and avoid probate.
A trust can help your life insurance work even harder for you. The primary goal of an Irrevocable Life Insurance Trust (ILIT) is to keep life insurance proceeds out of your taxable estate when it's settled.
An Irrevocable Life Insurance Trust offers several benefits:
- The proceeds of a life insurance policy can be protected from estate taxes
- Life insurance benefits can avoid probate and pass on to beneficiaries tax free
- A portion or all of the premiums can be gifted - tax free - to the trust, reducing the value of your taxable estate
- Assets of this trust can be protected from any claims from your beneficiaries' creditors
What if you were in an accident and were unable to make financial decisions? Do you worry about how your children would manage their inheritance? Is there one child who has trouble managing his or her money?
Maintain control of your assets while you're alive - and make sure your wishes are carried out when you're gone.
By establishing a trust, you have a trustee in place to oversee the account if you are incapacitated, and you can have rules in place to control your dependents' spending.
A Revocable Living Trust is a contract that allows the transfer of assets throughout the course of your lifetime and at death. Because it's revocable, you maintain control of the assets in the trust. You can change or revoke the trust any time you want. Also, as the trust owner, you specify what will happen if you become incapacitated while you're alive, as well as what you want to happen when you die.
The benefits of a Revocable Living Trust include:
- Maintain control of the trust while you're alive
- Change or revoke the trust while alive
- Make additional contributions to the trust at any time
- A professional trustee can manage the trust assets
- A plan is in place for unforeseen circumstances, such as incapacity
- Assets of the trust pass directly to your beneficiaries without going through probate
- Helps eliminate challenges to the estate
However, generally Revocable Living Trusts on their own do not help minimize estate taxes.
If you have a child or a loved one with special needs, you worry about their welfare. What would happen if you were gone? Who would provide for extra needs?
Have peace of mind - knowing your loved one will be provided for.
A Special Needs Trust is created to ensure that your child or loved one who is physically or mentally challenged will be provided for if they should outlive you. With the trust, you can set aside funds that may be dedicated to the care of the special needs person.
One in ten children have a mental health condition that causes significant impairment.*
A Special Needs Trust may provide financial support for items that do not fall under day-to-day living or "maintenance" expenses. For instance, the trust can be used to send a child to camp, take vacations, travel to visit relatives, or pay for therapeutic needs.
Using the trust to cover these additional purchases and services does not affect the beneficiaries' ability to draw upon needs-based government assistance, such as Medicaid and Supplemental Security Income (SSI).
The benefits of a Special Needs Trust include:
- Having peace of mind - knowing your loved one will be taken care of
- Providing for additional needs - beyond government assistance
- Continuing to receive government benefits
* Source: One in 10 Children Has Mental Illness; State by State Figures; Are Candidates Addressing the Facts? The National Alliance on Mental Illness. October 12, 2010.
If you have a charity that is near and dear to your heart, you can help support it with a trust. In 2009, Americans gave an estimated $303.75 billion to their favorite charities.*
Support your favorite charity - and minimize estate taxes.
Maybe you want to help a college or university educate future students. You may have personal experience with cancer or another disease and want to help advance research. You can support your church, an environmental cause, or an animal rights group. There are so many possibilities.
A Charitable Remainder Trust is designed to provide you with an income stream while you are alive, and support your favorite public charity or private foundation when the trust ends.
There are two types of Charitable Remainder Trusts: Charitable Remainder Unitrusts (CRUT) and Charitable Remainder Annuity Trusts (CRAT).
A Charitable Remainder Unitrust pays a fixed percentage of the trust's value annually to the donor or whoever else may be designated to receive income. A Charitable Remainder Annuity Trust pays a fixed dollar amount (established at the time the trust is set up, and that never changes) to the donor or whoever else is designated to receive the income.
A Charitable Remainder Trust offers these benefits:
- Support your favorite charity
- Receive a charitable tax deduction
- Enjoy an income stream
- Protect assets from creditors
- Help minimize estate taxes
*Source: U.S. charitable giving falls 3.6 percent in 2009 to $303.75 billion. Giving USA Foundation. June 9, 2010.