You should work with an attorney to develop your estate plan because as a layperson, there is no reason why you would understand all the tools that are available to you. There are many different types of trusts that can satisfy specific objectives, and you should be aware of your options.
We endeavor to explain them here on this blog, and in this post, we will look at four trusts that typically fly under the radar.
Secret Trusts
The “secret trust” is a legal device that was sometimes used by people that wanted to leave inheritances to individuals without anyone else knowing about it. It could be a mistress or a child that was born outside of wedlock.
This type of trust would be hidden within the terms of a will. You would leave a bequest to a someone, and from the outside looking in, it would appear as though it was earmarked for that individual.
However, the person would ultimately act as the trustee of a secret trust and distribute the assets to a mystery heir. Distribution would usually be triggered by a particular event, like college graduation or the celebration of a key birthday.
In addition to the secret trust, there is also a semi-secret trust. With the latter variety, the existence of the trust is revealed in the will, but the terms are kept secret.
These trusts are not commonly utilized these days because they are magnets for estate litigation. It is very difficult to prove the existence of a secret trust if the heirs hear about it and take the matter to court.
Totten Trusts
You may have heard of the Totten trust going by a different name. When you start an account at a bank, you have the option of adding a beneficiary. This is called a payable on death account, and these accounts are alternately referred to as Totten trusts.
If you take this route, the beneficiary that you name would have no access to the funds while you are living. After your passing, they would obtain a death certificate and present it to the institution.
The funds would be released to them if everything is in order, and this transfer would not be subject to probate. As a result, the exchange would be confidential, so this type of trust would serve the same purpose as a secret trust.
Funeral Trusts
There are people that do not know exactly what they will be able to leave to their loved ones because they intend to live it up during their retirement years. They are not too concerned about inheritances, but they don’t want their children to be stuck with their final expenses.
Under these circumstances, you could establish a funeral trust. You would make an arrangement with a funeral home that offers this option and fund the trust while you are living. After your passing, your family would use the assets to cover the final expenses.
Rabbi Trust
The final trust we will look at here is the rabbi trust. You do not have to be an actual rabbi to use this type of trust. It got the name because the first time it was utilized and approved by the IRS, the beneficiary was in fact a rabbi.
This is an irrevocable trust that is used by an employer to make deferred payments to an employee. A high-level employee may prefer this type of compensation because they will be in a lower tax bracket when they start to accept distributions from the trust after they retire.
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