You may be familiar with trusts as a way to avoid the inconvenience and public exposure of putting your estate through probate after you die. What you don’t realize is that these legal entities are the Swiss Army knives of estate planning. There are dozens of little-known varieties of trusts that can be useful even for people of moderate wealth. They offer clever ways to quickly turn over your bank accounts to heirs…make large annual gifts to your children without incurring gift taxes…and protect your assets while still maintaining Medicaid eligibility.
Bottom Line Personal asked top estate-planning attorney Michael Gilfix, Esq., to highlight some of these overlooked trusts and how you can use them to customize and improve your own estate plans…
Keep in mind that some of the most powerful irrevocable trusts, such as dynasty, special needs and many tax-sensitive trusts, are not discussed here.
Grantor. The individual who creates the trust and transfers assets into it…also known as the trustor.
Trustee. The individual or entity who administers the terms of the trust. In some trusts, the grantor of the trust also may serve as trustee. In case the trustee dies or becomes incapacitated, it’s common to name a successor trustee designated to manage the trust.
Living Revocable Trust. This is a fundamental building block for many estate plans. You—the grantor—create the trust during your lifetime, and it takes effect immediately. You can serve as the trustee, continue to use or sell the assets in the trust as you see fit, and have the power to revoke or change the terms of the trust at any time, including who will inherit the assets. But when you die, the successor trustee takes over, and the trust becomes irrevocable.
Irrevocable Trust. This type of trust typically cannot be modified, amended or terminated. (The exact rules vary by state). Once assets are transferred to the trust, you no longer legally own them or have control over how they are distributed, nor can you serve as trustee in most circumstances. You select the trustee, who has control of the trust. This typically removes the trust’s assets from your taxable estate and relieves you of the tax liability on the income generated by the assets. In some instances, trust assets may be included in your taxable estate (to obtain a stepped-up basis) and/or income may still be taxable to you. Unlike revocable trusts, the assets in most irrevocable trusts also are safe from creditors and legal judgments against you. There are two types of irrevocable trusts—a living irrevocable trust goes into effect during your lifetime…a testamentary irrevocable trust is established after your death, according to instructions in your will.
TOTTEN TRUST
This alternative to the formal mainstream living revocable trust is also known as a Payable on Death (POD) account. Technically not a trust, it is an easy, efficient way to leave cash, even large sums, to your heirs. It is also useful for seniors who need help with their bill-paying but are reluctant to make a child a joint owner on their deposit accounts.
How a Totten trust works: Your bank or credit union creates the trust to hold your deposit accounts (checking, savings, money market and certificates of deposit). As the account owner, you retain complete control and even can remove all the assets and close the account, if you want. If you’re elderly and find it hard to stay on top of your finances, you can make your child or a family member an authorized signer to the accounts in your Totten trust. That allows him/her to write checks and manage deposits and withdrawals on your behalf, but he has no personal ownership of the assets. The trust ends upon your death, and the beneficiaries can claim the account’s proceeds immediately by showing the bank a certified copy of the death certificate.
Other advantages: You save on the attorney fees for creating a trust. You just fill out paperwork at your financial institution, and it does the rest. Your beneficiaries have access to cash quickly after you pass away and before the bulk of the estate is settled. You can receive extended FDIC-coverage—typically, a bank covers a total of $250,000 per depositor, but in a Totten trust, each unique beneficiary gets full FDIC coverage (with a maximum of $1,250,000 for five or more beneficiaries), so if you leave your high-yield savings account to your two children, the money in the account is insured up to $500,000.
Caveats: Totten trusts are limited to cash assets only, meaning they can’t hold property or stocks. Other assets must be titled in your revocable living trust to ensure access by your successor trustee and to avoid probate. If you have no revocable trust, other assets will exposed to the court probate process with or without a will. Restrictions may vary depending on your financial institution. Example: The institution might limit the number of beneficiaries named in the Totten trust. At some credit unions, beneficiaries may be named to the entire membership account, as opposed to individual checking or savings accounts. A Totten trust does not have the full range of benefits of a formal trust—if you die and leave behind debts, creditors still can make claims on the assets in your deposit accounts. With or without a Totten trust, your assets will be subject to estate taxes if your estate is very large.
MEDICAID ASSET PROTECTION TRUST (MAPT)
Many retirees who lack long-term–care insurance worry that they will have to spend down all their assets to be eligible for Medicaid, the government program that helps cover medical costs for low-income individuals. Although Medicaid allows you to keep your primary residence and still qualify, the state may place a lien on it after your death to recover the costs of your care, forcing your heirs to potentially fork over a large chunk of their inheritance.
You can preserve assets before you become infirm by transferring ownership of your house to your children—but that has many drawbacks. In most states, Medicaid requires you not to give away assets for less than fair market value in the five years before you try to qualify for coverage. There are exceptions, such as in California where there is no cap on assets one can retain while qualifying for Medicaid, which essentially renders transfers unnecessary.
Moreover, when your children eventually sell the house, it may cost them hundreds of thousands of dollars in taxes. Reason: Their cost basis for the purpose of capital-gains taxes is what you originally paid for the home decades ago. A MAPT is a living irrevocable trust that maximizes your chances of getting Medicaid since assets in the trust are not counted in the calculation for eligibility. With careful planning, a MAPT can be created to capture the stepped-up basis.
How a MAPT works: You set up an irrevocable trust, decide who will inherit it and transfer the title of your home to the trust. In addition to your primary residence, you also can transfer other real estate holdings, as well as investments such as stocks and bonds. You no longer own the home—the trust does. But during your lifetime, you can keep the exclusive right to use and occupy your home and continue to receive all the tax exemptions on it.
Other advantages: If you move from the home during your lifetime and the trust sells the home, it can claim the home sale exclusion (up to $250,000) for the gain. After you die, Medicaid cannot claw back any of the assets in the trust. After you pass away, the IRS allows your heirs a step-up in their cost basis for the house when they eventually sell it—if the trust is properly drafted. Their new cost basis is then the home’s value on the date of your death.
Caveats: MAPTs may not be exempt from Medicaid’s five-year look-back period, so in most states you need to create the trust at least 60 months before you apply for Medicaid. You can receive income generated from assets in the trust, but that money is a countable resource for Medicaid eligibility. And irrevocable trusts make it challenging to adapt to changing circumstances. Example: You might encounter another big expense and struggle to pay for it after relinquishing your assets to the MAPT. To transfer retirement assets such as traditional IRAs and 401(k)s to the trust, you need to cash out and withdraw the money first, which can have significant income tax repercussions. In some states, a different approach is needed with regard to retirement accounts.
Also, some states base Medicaid eligibility on an income test rather than an asset test. In those states, a different trust is needed.
CRUMMEY TRUST
Many wealthy parents want to make direct gifts to their children or grandchildren. But transferring wealth this way has drawbacks. Any gift you make in excess of the annual gift tax exclusion amount ($19,000 for 2025) uses or exhausts a portion of your total lifetime gift and estate tax exclusion. That figure is $13.99 million for 2025 but could drop as low as $7 million if Congress doesn’t pass new legislation this year. A Crummey trust allows parents to make large annual gifts to their children and/or grandchildren without incurring gift taxes and while still retaining control over the funds.
How a Crummey trust works: You set up a living irrevocable trust that includes a provision known as a Crummey power. It’s named after a taxpayer who won a landmark case against the IRS in the 1960s. A Crummey power allows you to make gifts to beneficiaries without using any portion of your lifetime gift- tax exemption. You do that by giving beneficiaries immediate and unrestricted right to withdraw assets from the trust (typically 30 to 60 days after gifts are made). Beneficiaries may be limited to withdrawing a specific amount in any given year—either $5,000 or 5% of the trust’s value annually, whichever is greater. Example: If a Crummey trust is valued at $500,000, the beneficiary can withdraw a maximum of $25,000 (5% of the trust’s value) in that year. Additionally, the trustee typically has discretion to use trust assets for the needs of the beneficiary.
Other advantages: By exercising the Crummey power, the money you add to the trust can qualify for the annual gift-tax exclusion. That allows you to avoid using up your lifetime gift-tax exemption, potentially reducing your overall estate-tax burden. The limits on beneficiary withdrawals encourage responsible use of the trust funds by your kids or grandkids while still providing access to necessary resources for them. Also, you define the term of the trust. Example: It may exist until a child or grandchild is 30 or 35 years of age.
Caveats: The trustee of the Crummey trust needs to do careful recordkeeping and must issue annual notices to beneficiaries about fund-withdrawal rights. If the beneficiaries do not exercise their rights to the gift, the money remains in the trust for the benefit of the beneficiaries.
