Trusts serve a wide variety of needs in estate planning; they may be established for the benefit of a child, a disabled or incapacitated individual, a charity, or to minimize estate taxes upon death. Common examples of these types of trusts include special needs trusts, life insurance trusts, and charitable remainder trusts. All of these trusts are usually irrevocable trusts, which means that the provisions governing them cannot be changed nor can they be terminated at will. However, despite the requirement that these trusts must usually be irrevocable, there are often ways to provide some flexibility during the term of an irrevocable trust to deal with unexpected circumstances or changes
A life insurance trust allows for the organized management of the proceeds of a life insurance policy on the death of the insured. In addition, if a life insurance trust is properly created and operated, the proceeds of a life insurance policy that is held in the life insurance trust will not be included in the estate of the insured upon his/her death. Therefore, the proceeds will not be subject to any federal estate taxes. However, to avoid federal estate taxes, a life insurance trust must usually be irrevocable.
A special needs trust allows for property to be managed by a Trustee for the lifetime benefit of a disabled beneficiary. A primary advantage of this kind of trust is that the assets held in the trust will not prevent the disabled beneficiary from qualifying for benefits from various governmental benefits programs. Special needs trusts may be either irrevocable or revocable, depending on certain circumstances, especially the original ownership of the property held in the trust.
A charitable remainder trust allows for property to be managed for the lifetime benefit of a noncharitable beneficiary (spouse or children) with the assets remaining at the death of those beneficiaries being transferred to charity. A charitable remainder trust must almost always be irrevocable to avoid federal estate taxes.