Special Trusts

Serving Families and Individuals in Thousand Oaks and Conejo Valley, CA


There are many types of special trusts that can be drafted to meet various objectives of the client. Some of these objectives might be the qualification for public benefits, protection of assets, use of the family residence, incentives for beneficiaries, and planning for income, gift, and/or estate taxation. Some of the more common Special Trusts are briefly described below.

Lifetime Benefit Trust

Objectives:

  • Provide asset protection for an inheritance (divorce, lawsuits, bankruptcy)
  • Keep an inheritance free of federal estate tax
  • Pass the inheritance free of probate

How it works:

  • Avoid leaving an inheritance outright to a beneficiary (leaving an inheritance outright causes the assets to be “owned by the beneficiary” and subject to any legal problems the beneficiary might encounter such as tax liens, lawsuits, bankruptcy, and divorce)
  • Instead, place the inheritance in a trust (leaving the inheritance in a trust causes the assets to be “owned by the trust” rather than by the beneficiary which facilitates asset protection for the beneficiary. Since the beneficiary is not the owner (but rather “user”) of the trust assets, if the beneficiary is sued the trust assets are not available for attachment
  • Trust terms allow the beneficiary to use the beneficiary’s inheritance for life (the beneficiary has full use of all the assets (house, car, income stream from investments) and can cause the assets to be sold and new ones purchased
  • At beneficiary’s death any inheritance remaining will be transferred to family members (the trust may allow the beneficiary to designate the recipients of any assets remaining in the trust at the beneficiary’s death. At the beneficiary’s death the assets transfer without a court probate and are not included in the beneficiary’s estate for estate tax purposes)

Special Needs Trust

Objectives:

  • To leave assets for a beneficiary who is receiving public benefits without disqualifying the beneficiary from receiving those benefits.
  • To ultimately pass those assets to other family members

How it works:

  • Transfer the assets to a trust for the benefit of the beneficiary
  • The trust is specially designed to only allow distributions for the “needs” of the beneficiary which are not otherwise provided for through public benefits
  • This trust is a “supplemental” trust only which supplements the financial assistance received by the beneficiary
  • The assets are used through the lifetime of the beneficiary and at death are passed to family members or others as you designate

Residence Trust

Objectives:

  • To allow a residence to be occupied by another person (a spouse, a parent, child, etc.)
  • The period of residency could be for a stated duration or for a lifetime
  • At the beneficiary’s death or upon the occurrence of a designated milestone, the residence passes as you designate

How it works:

  • The residence (and sometimes money to pay for maintenance) is directed to pass into a trust
  • The trust terms permit the beneficiary to reside in the residence
  • The residency duration can last for a specified time, until an event occurs, or beneficiary’s death
  • Payment of all expenses relating to the residence can be paid by the trust, the beneficiary, or some other source
  • When the residency terminates the trust assets are distributed as you desire

Incentive Trusts

Objectives:

  • Keeping a beneficiary from blowing his/her inheritance
  • Promoting the attainment of a certain valued lifestyle or milestone

How it works:

  • Create a trust which holds all or a portion of a beneficiary’s inheritance
  • Have provisions that direct the trustee to make partial or complete distributions when beneficiary:
    • Reaches a certain age or ages
    • Is actively pursuing an education
    • Is maintaining a certain GPA
    • Has received a college degree
    • Is demonstrating an alcohol and/or drug free lifestyle
    • Has not been in jail for the last 5 years
    • Has remained debt free for 3 years

Life Insurance Trust

Objectives:

  • To cause the value of life insurance policies to not be subject to federal estate taxation
  • To create a source of money to be used to pay for future federal estate taxes
  • To have these aspects under the control of a designated trustee to assure your plan is fulfilled

How it works:

  • An irrevocable trust is established
  • A new or existing life insurance policy is transferred into the trust (this causes the value of the policy to be “owned by the trust” and not you)
  • Cash is paid into the trust and the trustee in turn uses this money to pay the insurance premiums
  • At death, the policy proceeds are received into the trust
  • The proceeds are used to pay federal estate taxation on your estate, but the value of the policy is not included in your estate for federal estate tax purposes (sometimes the cash in the trust is used to purchase assets from your family trust which provides cash to the family trust to pay your estate taxes. The family trust assets which are now a part of the insurance trust are distributed to your designated beneficiaries free of federal estate tax.)

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