Types of Trusts | American National Bank

Irrevocable Trust

A trust which by its terms cannot be revoked by the settlor or can be terminated by him only with the consent of someone who has an adverse interest in the trust - that is, someone against whose interest it would be for the trust to be terminated, such as a beneficiary.You cannot alter or revoke the trust. You must give up complete control of the property. If you do not give up control of the trust’s assets, the trust property and its income will generally be taxable to you during your life and may be included in your estate.

Revocable Trust (Living Trust)

A trust in which the grantor or a third party retains certain rights to income and principal or certain power over the disposition of income and principal. This type of trust may be amended or terminated by the settlor or by another person. A Living Trust gives you complete control over the assets in your trust, while offering you the protection, confidentiality and expertise of a trusted professional advisor. A Living Trust can free you of investment hassles and provide for protection should you become ill or incapacitated. It can handle a wide range of financial matters including asset management, bill paying, healthcare expenses, and taxes. A Living Trust can also reduce delays, expenses and taxes at your death. Unlike a will, a Living Trust is a confidential agreement, and the assets that are held in a Living Trust are not subject to probate. Upon your death, these assets are distributed according to your wishes. And, if you choose, the Living Trust can continue beyond your lifetime to provide continued support for your survivors.

Testamentary Trust

A Testamentary Trust is established by the terms of a will. Unlike a Living Trust that benefits you during your lifetime, it becomes effective upon your death to help minimize your estate taxes, preserve your wealth, provide for your survivors, and distribute your assets according to the instructions in your will. A Testamentary Trust is funded by your estate and administered by the trustee you designate in your will. Properly drawn, this type of trust can provide flexibility and responsiveness to the changing financial needs of your family.

Standby Trust.

A Standby Trust is a Living Trust that becomes operative in the event of your disability or incapacity. This type of trust is usually executed in conjunction with a durable power of attorney. Unfortunately accidents and illnesses are an inevitable part of life. By establishing a Standby Trust you can have the peace of mind that you have a trusted financial professional to handle your financial affairs should you become incapacitated. You retain the ability to manage your own financial affairs until such time as it becomes necessary or desirable to shift these duties to your designated trustee, such as American National Bank.

Revocable Insurance Trust

A type of trust funded with a nominal amount during the settlor’s lifetime. The trust becomes fully funded with insurance proceeds payable upon the settlor’s death.

Irrevocable Life Insurance Trust (Crummey Trust)

Life insurance plays an important part in most estate plans. You need to have sufficient coverage on your life for family members to maintain their current lifestyle after you’re gone. For larger estates that may be subject to tax even when a trust is used, life insurance can provide the funds needed to pay estate taxes without liquidating estate assets. If you have a substantial amount of life insurance, you may want to create an Irrevocable Life Insurance trust to help beneficiaries manage the proceeds and potentially reduce estate taxes. With a Life Insurance Trust, the trust is the owner and beneficiary of your life insurance policies. At your death, your trustee collects the proceeds and manages them for the benefit of your family or other beneficiaries. As long as the trust is properly structured, the insurance proceeds won’t be included in your estate for federal estate tax purposes, with one exception. The proceeds of any insurance policies you transfer to a trust within three years of your death will be included if you have retained any “incidents of ownership” (control). However, you can avoid this three-year rule by (1) transferring your insurance policies to a trust now while you are in good health or (2) having your trust buy new insurance policies on your life rather than transferring existing policies. A Crummey Trust grants a beneficiary a limited power to withdraw income or principal or both. This “Crummey power” is generally limited to the amount excludable from gift tax liability under the annual gift tax exclusion or the greater of $5,000 or 5% of the trust property.

Grantor Retained Annuity Trust (GRAT)

A Trust in which the grantor retains the right to a set annual dollar amount (the annuity) for a fixed term and gives the principal to others, such as the grantor’s children, at the end of that term. If the grantor survives until the end of the annuity term, all of the trust principal will be excluded from the grantor’s estate for death tax purposes.

Grantor Retained Income Trust (GRIT)

A trust in which the grantor retains the right to all of the trust income for a fixed term and gives the principal to others, such as the grantor’s children, at the end of the term. If the grantor survives until the end of the income term, all of the trust principal will be excluded from the grantor’s estate for death tax purposes.

Qualified Terminable Interest Property Trust (QTIP)

A terminable interest that will qualify for the marital deduction if an appropriate election is made by the donor or executor. In order to be QTIP property, the surviving spouse must be entitled to all of the income of the property during the spouse’s life and no person, including the spouse, may have the right to appoint the property to anyone other than the spouse during the spouse’s life. The major benefit of a QTIP marital trust to a grantor is that, at the surviving spouse’s death, the remaining trust property is not subject to a general power of appointment in the spouse, but instead passes to beneficiaries selected by the grantor.