You’ve probably heard of a trust before, but what about a semi-secret trust? Have you heard of a Totten trust? How about a rabbi trust? This article is an examination of five trust types you probably aren’t familiar with.
Join us for an explanation of secret and semi-secret trusts, then keep on reading as we take a quick look at Totten trusts, blind trusts, rabbi trusts, and funeral trusts. Let’s begin!
1) Secret and Semi-Secret Trusts
Even the name “secret trust” sounds mysterious, doesn’t it? These aren’t exactly common, but they’re worth knowing a bit about. Let’s start with an example: for our purposes, a man named Tom has had a clandestine relationship with the Candace for many years.
Tom is, unfortunately, married while he is having a relationship with Candace. Like most people who are engaged in illicit affairs, he does not want his wife to find out about Candace. However, Tom wants to leave Candace a bequest. How can he accomplish this?
Tom “comes clean” and tells his brother, Jim, the whole story. Although Jim isn’t entirely pleased, he agrees to be the trustee of a secret trust. Tom leaves Jim a bequest in his will. The rest of their family believes that it is simply a gift from brother to brother.
But what is the reality? Here is the truth: Jim’s bequest will be used to fund a secret trust for Candace’s benefit. In addition to the secret trust, there is also a semi-secret trust. The fact that a trust is going to be created is obvious from Tom’s will, but the details of that trust are secret.
Now, to be clear, most attorneys are not going to condone going behind your partner’s back. We have an ethical requirement to be clear and open to both partners in a marriage when we’ve been hired by a married couple. Although these trusts have been used for a variety of situations (not just illicit affairs!), estate planning attorneys typically do not recommend secret trusts. Why? Beyond the obvious moral implications, consider this: the truth tends to come out. Although your attorney has a duty of confidentiality, the rest of your family and friends do not. Family members talk, gossip gets out, and messy legal actions can be initiated if the surviving family puts the pieces together.
2) Totten Trust
On that cheery note, let’s move on to the Totten trust. What is this? How does it work? At its most basic level, a Totten trust is a “payable on death” account.
When you open an account at a bank, you can add a beneficiary who will inherit the assets after you pass away. This transfer is private. Probate courts would not be involved, which significantly deceases the number of public records and potential exposure.
Consider that assets that are transferred through the terms of a will are subject to probate, which is a public proceeding. Anyone with even a casual interest can access probate records to find out how the resources were distributed.
3) Blind Trust
You may have heard about politicians who use blind trusts to manage their investments. How do these actually work? Generally speaking, this setup means that an independent trustee is managing the funds while the grantor is (theoretically, anyway) unaware of how the resources are being invested.
Blind trusts are not limited to politicians, however. We’ve seen a variety of situations where they are used to avoid concerns about a conflict of interest. Consider this alternative example: a business executive who is concerned about securities regulations might find a blind trust to be extremely useful.
4) Rabbi Trust
Despite the name, a rabbi trust has nothing to do with one’s faith. So what does it mean? A rabbi trust is typically used by employers who convey resources into a trust to give their executives tax-efficient compensation.
Where did the name originate from? I wish we had a better story, but the truth is fairly straightforward: the first use of this trust (and approval by the Internal Revenue Service) was for a rabbi. The term “rabbi trust” has stuck around ever since.
5) Funeral Trust
Finally, and with a sense of finality, we come to the funeral trust. Some funeral homes will give you the option to establish and fund your funeral trust. This means that you will put assets into the trust while you are living. After you pass away these resources are earmarked to pay your final expenses.
There are some advantages and disadvantages to this system. Although a funeral trust may remove a financial burden from your loved ones at a difficult time, it is crucial that you choose a trustworthy entity to establish this trust.
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These are just a few of the many trusts we’ve seen here at the Slaton Schauer Law Firm, PLLC. As estate planning attorneys, our goal is twofold: first, to get to know you and your family on an individual basis. Second, to create a custom estate plan that both meets your needs and protects your legacy.
When you choose us as your estate planning attorneys, we’ll take the time to examine your situation during a no-pressure initial consultation. We’ll explain your options, and give you the power to make fully informed decisions.
If you decide to move forward with us, you will come away with a custom-crafted plan designed around you and your family. You can also call us about any questions or issues that pop up later.
Are you ready to get started? Give us a call today at 512-258-9455. You can also use our handy contact form to send us a message. Once you’ve set up a consultation, we’ll look forward to meeting you at our Austin-area office.