What is the best type of trust fund?
My niece is 18 years old and intellectually disabled. She is about to inherit a large sum of money from a medical lawsuit. The attorney for the lawsuit suggested to set up a trust fund. Which type of trust fund is best in this situation? Her mom is not comfortable allowing the attorney to be trustee. What do you think about the bank as the trustee with a relative as the co-trustee?
In my opinion, a qualified elder law attorney should answer this question. Although I am not an attorney, from my experience a supplemental needs trust (also known as a "special needs trust") makes sense in this situation.
Special needs trusts are specifically designed for individuals with disabilities, physically and mentally challenged. It also helps to not disqualify her from needs-based government benefits (such as Social Security, or Medicaid for long-term care). The trust should be irrevocable, so it is not counted as a personal asset.
As far as the attorney or bank as the trustee (with a relative as a co-trustee), that decision will have to be made regardless. In my opinion, mismanagement can happen either way. However, there should be no conflicts of interest when making investment decisions, and unfortunately, that won't be the case working with a bank.
If you have any further questions, I'd be happy to help.
That is a terrible idea. If you name a bank as trustee then the bank will charge high annual fees even after the person has died; this happened to a close friend of mine. Instead, pick a close reliable friend if you don't trust a family member, ideally someone who is relatively young and will therefore be alive for a significant part of the lifetime of your niece.
Also, a trust may not be the best approach since it usually involves significant legal expenses and very high tax rates. It is usually better to have the money in a regular bank or brokerage account managed by someone who is a full power of attorney and who is listed with the bank or broker in that capacity, thereby qualifying for favorable tax treatment for long-term capital gains and qualified dividends.
Yes, a bank or relative could be a good trustee, but keep in mind that you can have a trusted financial advisor manage the actual funds in the trust account. While an estate or tax attorney can establish the trust documents, the trustee can be appointed as you wish and directed to work with an advisor of your choice. You might want to consider a trust fund with advisor oversight at Betterment.
I'm so sorry about your niece! She needs a special needs trust set up by an attorney who specializes in this area. This will allow protection of the assets and for your niece to still be eligible for federal medical and other benefits. If your sister doesn't like the attorney to be trustee, I highly recommend a bank or other professional trustee to help the family manage the trust. Any mistakes and the trust can be disqualified resulting in a loss of benefits for your niece. Don't let the family try to go it alone without professioanal help. Good luck with everything!
Please not first that the laws of Maryland can differ from other states.
Here is a general explanation that covers 99% of trust types and includes the one that would help your niece.
A Trust is perhaps the best channel to keep your money and other assets safe and secure for your future generations. It is a lawful creation that isolates your money for specific reasons.
A trust is beneficial even when the grantor is alive and after his death. A grantor, settler or donor is the person who is responsible for settling the trust. Trust funds can be set up by single or a group of individuals. There are always some reasons behind forming a trust. These reasons vary from persons to persons. Besides the grantor, there is or are trustees. These trustees are appointed by the grantor and they take care that the trust is functioning according to the will or wish of the grantor.
The first and the foremost benefit of a trust is the tax saving. A trust can protect the grantor from paying huge taxes and claims. Money kept in abeyance in the form of a trust can be helpful in your old age when you take retirement, when your children need money for higher studies or for the secure future of your spouse or when you plan to do a venture in business etc. The money enveloped in the name of trust is exempted from taxes like the estate tax and the like. The tax subsidy actually varies with the kind of trust you have formed.
Types of Trusts
1 If a person is alive and forming a trust then such a trust is called a living trust. Every trust including the Living trusts can be bisected to form the- Irrevocable and Revocable trusts. The former are those where the statements cannot be altered by the grantor during his lifetime and even after that once legally formulated and the in the revocable trusts the settler can change his statements even after they are legally penned down once till the time he lives. For instance a trust set up by parents that provides for their minor children in case any problem grips them. Both these types of trusts revocable as well as irrevocable have their positive and negative aspects.
2 There is also the Life Insurance Trust that ensures some kind of financial safety for the survivors in case something happens to the donor. A life insurance trust fund is better than a simple life insurance policy because of the tax exemption. The trust fund is not subject to the cumbersome Estate Tax while when the beneficiaries receive the policy money it is supplemented with this tax. Again there are pros and cons associated with both, it is recommended to take the advise of an attorney before reaching any conclusions.
3 Bypass Trust is formed by a couple. When either of the spouses die, the estate is transferred to the other and is taxed and when they both die, it is taxed again.
4 Spendthrift Trust- is a trust that allows you the opportunity to let only those people benefit of the money that you think are worthy enough. In simple terms via this trust you can safeguard funds for the individuals you like, no one else can claim them.
5 Living Children’s Trust- is the trust to ensure a bright future for your kids. The grantor can add clauses in it like the child will get the funds only when he turns a major etc. and till then the guardian (usually parents of the child) he appoints will take care of the children and the trust fund.
6 Charitable Trust Funds- the best philanthropic idea to help the destitute throughout your lifetime and even after your death.
Once you make your mind which trust to go for, make some profound thinking as to who will be its beneficiaries and at what time, about the trustee, what exactly are the terms and conditions, the taxes by the State, should the trust be revocable or not and so forth. After all a trust is your lifetime investment you need not take any chances!
If you have further questions, do not hesitate to reach out at www.financialwealthplanners.com