So you’re thinking about setting up a trust. Or you’ve been appointed to be a trustee for a trust. It would probably help to know what the differences are between the types of trust, and why someone would set one up in a specific way.
Trusts can be set up during life, and survive a grantor’s death or they can be set up by will, which sets up the trust after the grantor’s death. Assets that are passed into the trust belong to the trust, not the trustee, whose activities are governed by the trust contract creating the trust. The trustee does, however, hold title to the trust property and is in charge of its management, while the beneficiary of the trust receives the benefits of the trust but does not manage it.
A trustee may be required by the trust document or a court to obtain a trustee surety bond to protect the interests of the trust beneficiaries. The amount of the trustee bond is usually determined by the trust document.
Revocable Trusts
Trust grantors create these while alive, giving the grantor the ability to alter or even fully revoke the trust entirely. With revocable, or living trusts, the grantor passes title to assets to the trust, but still has the ability to alter or revoke the property held by the trust in his or her capacity as trustee. The main advantage of the revocable trust, besides the ability of the grantor to alter it during his or her lifetime, is that if the property is held by the trust at the time of the grantor’s death, the trust assets avoid probate. However, assets transferred to the revocable trust during the grantor’s lifetime are still available to creditors, provided their petition to the court to access the trust property is approved. Once the grantor dies, the trust typically converts to an irrevocable trust as the one with the power to revoke the trust is no longer living.
Irrevocable Trusts
Irrevocable trusts, on the other hand, can’t be altered. Once property is transferred to an irrevocable trust, not even the grantor can take it back from the trust.
Asset Protection Trusts
These types of trusts are designed to do exactly what it sounds like: protect the assets from claims of future creditors. Sometimes, these are set up outside the United States to protect assets from creditor attack.
Charitable Trusts
These types of trusts benefit either the public in general or a specific charity. These are typically set up to avoid estate and gift taxes.
Constructive Trusts
These kinds of implied trusts are constructed by the court from certain facts and circumstances. The court is essentially making a trust despite one never formally having been declared by a grantor.
Spendthrift Trusts
These do not let a beneficiary dispose of any interest in the trust. It protects the assets from the beneficiary’s creditors until distributed to the beneficiary from the trust.
Tax By-Pass Trusts
These allow a spouse to leave assets to another while limiting the amount of estate tax that would otherwise have to be paid on that type of transaction after the surviving spouse’s death. Otherwise, when the surviving spouse dies, the assets over the exempt limit are then taxable on passage to their children. A tax by-pass trust, therefore, lowers the amount of estate taxes that the children would pay.
Special Needs Trusts
Special Needs Trusts are set up for people who receive government benefits to qualify them for receiving government benefits. This is allowed provided that the beneficiary cannot revoke or alter the trust, and does not control distributions. Usually, these trusts have provisions that would terminate the trust if the amount of benefits received from the trust would render the beneficiary ineligible for continued government benefits.
Totten Trusts
These are created during a grantor’s lifetime, when the grantor deposits assets into an account as a trustee for another beneficiary. This gift is revocable until the grantor’s death unless there is an unequivocal act of the grantor desiring to give this gift during their lifetime to the beneficiary. Totten trust assets avoid probate after the grantor’s death. These types of trusts are primarily used with accounts in financial institutions, such as savings accounts. Learn more about the different types of trusts.
But where do you easily purchase a trustee surety bond?
Colonial Surety offers the direct and digital way to obtain trustee bonds. We are the insurance company — which means no agent, no broker, and no middleman. We make it easy to obtain your court bond instantly. The steps are easy — get a quote online, fill out your information, satisfy underwriting requirements, and enter your payment method. Print or e-file your bond from your office. It’s that simple!