Trusts have the flexibility to do something as simple as creating a delay between when you give property away and when the intended recipient actually gets it, or complex enough to manage a wide array of assets for many people and organizations over several generations, giving everybody involved different things at different times. Trusts can come in two distinct forms: revocable and irrevocable. A revocable trust creates a legal fiction to hold a person's property, usually so that it can go directly to their families when they die instead having to pass through probate. The most common form is called a living trust, and is discussed next. The more common type of trust, an irrevocable trust, places property in a permanent, separate entity, and has many uses. The most common ones are as follows.
Often, a person may want to give a sum of money to his or her children or grandchildren, but doesn't want the money to be squandered, or you'd like to make a charitable gift in your will, but you want them to use the money for a very specific purpose. By creating a basic trust, you can dictate when the recipient gains access to the money ("when he reaches the age of 25," "when she graduates from college"), and/or what the money is used for ("for graduate school tuition and expenses" or "for research into experimental breast cancer drug therapies").
Sometimes you may trust a recipient completely, but there are tax benefits to giving money away sooner rather than later, giving away smaller amounts over a longer period of time, or limiting a gift to specific uses like educational expenses or charity. A simple trust can help you to reap these tax benefits.
A discretionary trust helps you with similar situations to a simple trust, but with more flexibility. Instead of structuring exactly how and when your beneficiaries get trust funds, you arrange for someone whose judgment you trust to be trustee, and give them complete control over how much money they give to the beneficiaries (or spend on their behalf), when, and for what.
A type of discretionary trust called a spendthrift trust makes absolutely sure that the beneficiaries have no right to demand payments from the trust. This is important because it means the funds in the trust won't be counted against a beneficiary if they apply for or are getting government benefits and services. It also prevents any trust assets from being seized by a beneficiary's creditors. Because of this, spendthrift trusts are common when creating funds for a disabled person or special needs child, when preparing for a senior to eventually qualify for nursing home care under Medicaid/Title 19, or when one or more beneficiaries of a trust fund may have financial troubles.
Trusts with Multiple Beneficiaries
As I mentioned earlier, trusts can have multiple beneficiaries at multiple levels. A trust might have three siblings as beneficiaries, and it might give them each an identical share with identical conditions, it may give each beneficiary a different share or different conditions, or it may be a discretionary trust that allows the trustee to apportion the assets among them as he sees fit. A trust may allow, or even require, that they don't get anything, and that at some point another person, people, or charity start receiving property/money from the trust instead. For example, a people who are married but have children from a prior marriage will often place a trust in their will that leaves all of their property (or just the use of it) to their spouse, but passes whatever is left to their children when the spouse dies. For some affluent people, more complicated trusts containing assets like stocks, bonds, business interests, and real estate holdings are often created with two sets of beneficiaries. One set will receive all of the profits/dividends/income from the assets (or a fixed percentage of the trust's value) for a period of time or as long as they live. The other set will get the property itself when that time comes.
Marital Deduction Trusts
A marital deduction trust (also called an "AB trust" in CT or "A-B-C trust" in MA) is an arrangement of trusts that allows couples with a high net worth to spread their property more evenly amongst themselves so that they can make use of any "free passes" the federal government and state provide on estate taxes.