Common Types of Trusts in North Carolina
Collins Family & Elder Law Group's estate planning practice includes revocable trusts, irrevocable trusts, minor trusts, pet trusts, and related planning structures. The firm also has a dedicated Special Needs Trust practice.
Revocable Living Trusts
A revocable living trust is created during your lifetime and generally allows you to retain significant control over the trust and amend or revoke it while the power to do so remains available under the trust terms and North Carolina law.
A properly structured and funded revocable trust can help with incapacity planning and may allow property held in the trust to pass outside probate after death.
The funding point matters. Creating a trust document does not automatically transfer every account, home, or other asset you own into the trust.
Revocable trusts also generally do not remove the trust property from the settlor's federal taxable estate simply because the assets are held in trust.
Irrevocable Trusts
An irrevocable trust generally gives the settlor less ability to change the trust or reclaim its property than a revocable trust.
Depending on how a particular trust is drafted, funded, and administered, an irrevocable structure may be considered for goals involving asset protection, long-term care planning, Medicaid, charitable planning, or federal tax planning.
Those results are not automatic.
For federal estate-tax purposes, the treatment of property in an irrevocable trust can depend on whether the settlor retained particular interests or powers. An irrevocable label alone does not determine whether the property is included in the settlor's gross estate.
Trust transfers can also affect Medicaid eligibility. North Carolina currently applies a five-year transfer look-back in relevant institutional Medicaid cases, making individualized review important before property is transferred for Medicaid-planning purposes. Families focused primarily on eligibility should also review our Medicaid Planning services.
Special Needs Trusts
A special needs trust can help provide resources for a beneficiary with a disability while taking Medicaid, Supplemental Security Income, and other benefit rules into account.
Federal law recognizes specific trust exceptions that may prevent qualifying special needs trusts from being treated under ordinary SSI resource-counting rules. The trust structure, funding source, beneficiary, distributions, and administration all matter.
Because this planning has its own detailed requirements, families with a disabled beneficiary can learn more through our dedicated Special Needs Trust practice.
Trusts for Children and Young Beneficiaries
A trust can continue managing an inheritance instead of requiring an immediate outright distribution.
Parents or grandparents can establish instructions addressing how assets should be managed and when distributions may be made. The plan can consider education, health needs, financial maturity, family circumstances, and the age or milestones at which greater control should pass to the beneficiary.
This can be especially useful when the person creating the estate plan does not want a young beneficiary to receive a significant inheritance all at once.
Pet Trusts
North Carolina expressly recognizes trusts for the care of designated domestic or pet animals alive when the trust is created.
The trust can establish how funds should be used for the animal's care and direct what happens to remaining property when the trust ends. North Carolina law generally provides for the pet trust to terminate when the last covered animal dies.
Testamentary Trusts
A testamentary trust is established through a will and begins operating after death.
Because the trust is created through the will, assets directed into it through the probate estate generally pass through the probate process before becoming subject to the testamentary trust.
This structure may still be useful when the goal is continued management after death, such as holding an inheritance for children or controlling distributions over time.
Creating and Funding a Trust
Selecting a trust type is only one part of the planning process.
North Carolina law recognizes several methods of creating a trust, including transferring property to a trustee, declaring that identified property is held in trust, certain beneficiary designations, and a trust created through a will.
For a living trust to accomplish its intended purpose, the estate plan also needs to identify which assets should be transferred to, titled in, or otherwise coordinated with the trust.
That process varies by asset.
Real estate may require deed and title work. Financial accounts may require retitling or institution-specific documentation. Other assets may be handled through beneficiary designations or other planning mechanisms.
A trust should therefore be viewed as more than a signed document. The document, ownership of assets, beneficiary designations, and the rest of the estate plan need to work together.
Choosing the Right Trustee
A trustee has significant legal responsibilities.
North Carolina law requires a trustee to administer the trust in good faith according to its terms, purposes, applicable law, and beneficiary interests. The state's duty-of-loyalty statute also generally requires trust administration solely in the interests of beneficiaries.
When choosing a trustee, families may need to consider:
- Financial judgment
- Reliability
- Family relationships
- Ability to follow detailed instructions
- Willingness to keep records and communicate with beneficiaries
- Whether a successor trustee should also be named
- Whether an individual or professional fiduciary is more appropriate
The right choice depends on both the trust's complexity and the people involved.
Coordinating Trusts With Elder Law and Family Needs
Trust planning can overlap with issues beyond transferring property after death.
An older adult may be thinking about Medicaid eligibility and future care. A parent may need to protect benefits for a child with a disability. A blended family may want to balance the needs of a current spouse with inheritances for children from an earlier relationship. Divorce or remarriage may also change whether an existing trust still reflects the family's goals.
That broader context is one reason Collins Family & Elder Law Group's combination of elder law, estate planning, and family law can be useful. Related matters can be identified within the same firm rather than treating the trust as an isolated document.
For complex elder law questions, the firm's attorneys can also draw on Senior Counsel Kathryn Cook DeAngelo, a Certified Elder Law Attorney certified by the National Elder Law Foundation who has devoted more than 35 years to elder law. Kathryn primarily serves in an advisory and consulting role for the firm's associate elder law attorneys when matters involve unusual or particularly complex issues.
Trusts and Tax Planning
North Carolina's estate tax was repealed for estates of people dying on or after January 1, 2013. Federal estate-tax rules can still be relevant for some families.
Whether a trust changes federal estate-tax exposure depends on the type of trust, the property transferred, retained interests and powers, and other aspects of the plan. A revocable or irrevocable label by itself does not answer the tax question.
For many families, tax planning may not be the primary reason to create a trust at all. Probate planning, incapacity, beneficiary protection, family circumstances, or continued asset management may be more important.
