There are different types of trusts that are somewhat unusual, so they fly under the radar. When you are planning your estate, you should be aware of all the options that are out there, so we are going to look at five trusts that you may not be aware of in this post.
Rabbi Trust
The first trust that we will explain has a very unusual name, but it is receiving more attention. A rabbi trust would appear to have something to do with religion, but in fact, this is not the case at all.
It carries the name because the first beneficiary of this type of trust was in fact a rabbi. These trusts are used by companies to provide deferred compensation benefits to executives.
An employer will fund the trust over the years in lieu of direct compensation, and the executive would start to take distributions after retirement when they are in a lower tax bracket.
Blind Trust
A blind trust is a device that is used by politicians that hold political offices and executives that are concerned about securities regulations. Conflicts of interest can be real or perceived, so they convey their personal assets into blind trusts.
An independent trustee makes investment decisions without sharing information with the grantor, so there can be no credible allegations of insider trading.
Funeral Trust
Some people want to cover their final expenses in advance so family members are not forced to deal with the responsibility. This can be done through the utilization of a funeral trust.
Many of our clients create this trust when setting up their estate plans. After it is created, you make contributions to the trust during your life. It is often a lump sum that is invested until your demise. After your passing, the assets are used to pay for your funeral expenses.
Secret Trust
Now we can get to the intriguing secret trust. Sometimes a person will want to leave an inheritance in a confidential manner. It could be an individual with a clandestine paramour or a child that family members do not know about.
They would leave a bequest to someone that they have discussed the matter with in advance, and the person would agree to use the assets to establish a trust for the secret beneficiary.
These trusts are usually not recommended by estate planning attorneys because family members will inevitably file a lawsuit if and when they find out about this type of arrangement.
Totten Trust
Someone that would be interested in a secret trust because they want to provide a confidential inheritance would do well to consider the utilization of a Totten trust. These trusts are alternately referred to as payable on death or transfer on death accounts.
The way that it works is you open an account at a bank or a brokerage and you name a beneficiary. This individual would have no access to the resources while you are alive.
After your passing, they would go through the proper channels to get a copy of the death certificate. It would presented to the institution, and the funds would be released to them if everything is in order.
This transfer would not be subject to probate. As you may know, probate is a legal process that is public. Anyone that is interested can access probate records to find out what transpired. Since Totten trust transfers do not go through probate, no one has to know about the account, the beneficiary, or the transfer.
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Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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