This is the client. Sometimes, this role is also called a Grantor, a Settlor or a Trustor. Our advice is to keep it simple. Call them the Trustmaker.
Revocable Living Trust (RLT)
This is a legal document that outlines the plans the Trustmaker made for his assets and family. The Trustmaker can amend or revoke this kind of Trust.
When a Trustmaker dies, his RLT automatically becomes an Irrevocable Trust, meaning its directives generally cannot be changed or revoked. A Trustmaker also can create an Irrevocable Trust during his life for many purposes, such as reducing taxes, for gifting and for asset protection.
This person (or persons) manages the Trust and watches over the assets within it. Typically with a RLT, the Trustmaker appoints himself as Trustee. Upon the Trustmaker's death, a Successor Trustee steps in and assumes management of the Trust.
This person receives income or assets from the Trust. During the Trustmaker's life, he can simultaneously be Trustmaker, Trustee and Beneficiary. After his death, the Beneficiary becomes whoever the Trustmaker named as such. Usually this will be a spouse or child, but it can also be a non-relative or charitable organization.
Lifetime Protective Trust
An inheritance left outright to a child in a Will can be attacked by creditors or lost through a divorce or personal lawsuits. Parents can place assets into this kind of Trust to prevent them from being seized or later subjected to the Federal Estate Tax on the child's estate. This inheritance can be protected for successive generations.
Qualified Terminable Interest Property (QTIP)
This is a common planning tool that is often used during second marriages to prevent accidental disinheritance of children from a first marriage. A QTIP allows your client's surviving spouse to benefit from assets held within the Trust, such as continuing to live in the client's home after the client dies and receiving income from the assets held in the Trust.
No estate taxes are assessed until after the surviving spouse dies. The QTIP postpones estate taxes, but it does not eliminate them. After the death of the surviving spouse, assets in the Trust are distributed according to the Trustmaker's wishes (i.e. given to a client's children).
Irrevocable Life Insurance Trust (ILIT)
In this kind of planning, a Trust owns the Trustmaker's life insurance policy. If properly funded, the ILIT protects the policy's proceeds from the Trustmaker's Federal Estate Tax burden. These proceeds can be used to pay those taxes or support the beneficiary, usually a spouse or child.
Intentionally Defective Grantor Trust (IDGT)
This kind of Trust has a really bad name, but it's a pretty effective way to transfer wealth by which your client gifts an asset's appreciation but keeps its income. Many people use IDGTs as a succession planning tool for a family business.
Since your client keeps the income from the asset in the Trust, he will pay income taxes. However, the asset and its appreciating value will be passed along to his beneficiaries. The advantage to this Trust is that the asset is removed from the client's estate and not subject to the Estate Tax. There also is creditor protection for the asset in the trust.
Lifetime Protective Trust
When a client leaves an inheritance to a child outright, it can be subject to the child's creditors, former spouses, addiction problems, inability to manage money and a Federal Estate Tax on the child's estate.
This trust is contained in someone's will. It comes into existence upon a Trustmaker's death and is subject to probate proceedings.
Special Needs Trust
This is established to benefit a child with disabilities and who is entitled to government assistance, such as Social Security disability payments.
An inheritance held within a special needs trust will not disqualify the child from receiving the assistance. Distributions are made at the discretion of the Trustee for the child's special needs. The trust can be stand-alone or be a sub-trust of a revocable living trust.
Asset Protection Trust
When a Trustmaker puts assets into a revocable trust, the assets are not protected from claims by the Trustmaker's creditors or lawsuits. Several states now permit Domestic Asset Protection Trusts (DAPT), which allow a Trustmaker to transfer property into an irrevocable trust of which he is the beneficiary.
If the statutory requirements are met, then the assets within are protected from predators, usually after a certain time period has passed.