The names of various trusts may sound like another language. Others may make you feel like you are lost in acronym soup, CRT, ILIT or a TSNT.
Even the length of the trust instrument itself can vary based on your needs. One beneficiary might mean it is simple and short. Or it could be a lengthy document if an complex investment portfolio is funding the trust. In this second post in our series on trusts, we want to discuss some of the different types of trusts available in Colorado.
Revocable versus irrevocable
Two broad categories of trusts exist. A Living Trust is an example of a revocable trust. You are able to amend this type of during your lifetime. If incapacitated or upon death a successor trustee takes over. This type of trust may allow for you to access an income stream while still living and then transfer any remainder to loved ones without the need for court involvement.
A Charitable Remainder Trust (CRT) or a Qualified Personal Residence Trust (QPRT) fall into the revocable category. They allow for access during your lifetime and then the remainder is distributed according to your wishes.
Another trust often referred to by an acronym is a Qualified Terminal Interest Property (QTIP) trust. This lets a surviving spouse live off the income of investments contained in the trust portfolio. Principal cannot be touched and then transfers according to your wishes – for example, divided equally between children from each prior marriage.
Irrevocable trusts cannot be changed, for the most part, once they have been established.
Adding a spendthrift clause may provide protection for a family member by placing assets out of the reach of creditors and making it impossible to later sell the annuity stream.
Testamentary and created through a will
These trusts do not take effect until after you have passed. A will may contain a Testamentary Special Needs Trust (TSNT) if you want to provide for the needs of an adult child with down syndrome or severe autism without affecting eligibility for Medicaid or other government-funded programs.
Because each family has unique needs, it’s important to discuss your situation before deciding which type of trust will best accomplish your estate planning goals.