What is a Trust and when is it used?

A trust is a financial agreement whereby one party, called the Grantor, transfers title to certain property to the Trust for the benefit of a particular person or organization, called the Beneficiary. The person who administers the trust according to the trust documents is the Trustee. The Trustee is bound by law to distribute the assets of the trust according to instructions given in the Trust. Because the individual Grantor no longer has title to the property and has no ownership interest in the property, the property does not pass under a Last Will and Testament.

Trust creation and administration is complex, but the advantage of having a Trust is that the Grantor can control distributions of property much more easily than property distributed according to a Will. For example, it is possible within a Trust for distributions to be delayed until the recipient has reached a certain age. There can also be significant tax advantages and cost-savings associated with trusts.

What is the difference between a revocable living trust and an irrevocable living trust?

A revocable trust is what is says it is — a trust which can be revoked by the grantor. In this trust, usually the grantor, trustee, and beneficiary is the same — YOU! However, because you retain complete control over the trust assets, you may not be not protected from creditors trying to attack these assets.

An irrevocable trust is a trust set up for the benefit of another where the grantor relinquishes title and control of assets. The assets are no longer in the name of the grantor, nor does the grantor retain any control over distribution of the assets or play any role in the administration of the trust as trustee. When done properly, assets transferred into an irrevocable trust may be shielded from creditors.

One particular kind of irrevocable trust is a Special Needs Trust. With this, proceeds are put in Trust for someone who is physically or mentally challenged. The Trust allows support of a disabled or chronicall ill person without potentially jeopardizing benefits provide by public assistance. Trust funds are not counted toward qualifications for Social Security and Medicaid purposes. Further, Trust accests cannot be seized by creditors or attached as the result of a judgment.

A Qualified Income Trust (QIT) or Miller Trust helps people qualify for Medicaid benefits by reducing their income for eligibility requirements. Medicaid has a strict income limit, and a QIT can help reduce a person’s income to fall below that threshold.