Charitable and non-charitable trusts in Michigan: The basics

There are many types of trusts available in Michigan. One way to break them down is to consider whether they are charitable or noncharitable.

Trusts are legal tools that allow for control over how assets are used. These tools can be used during one’s lifetime to help reduce tax obligations and can also be used to help ensure an inheritance is used wisely. Having a basic understanding of how these instruments work can help you decide if a trust would make a good addition to your estate plan.

Trust types

Trusts can be regulated by both state and federal laws. As a result, the types of trusts available may depend on where you live. Those who reside in Michigan have a number of options. One way to review these options is to consider them in one of two broad categories: charitable and non-charitable.

Charitable trusts in Michigan

Charitable trusts are legal instruments that are generally designed to benefit the public or a particular charity. More specifically, Michigan law states a charitable trust can be created:

[F]or the relief of poverty, the advancement of education or religion, the promotion of health, scientific, literary, benevolent, governmental, or municipal purposes, any purpose described in section 501(c)3 of the internal revenue code, 26 USC 501, or other purposes the achievement of which is beneficial to the community.

In addition to the personal satisfaction that comes with funding a cause that the creator believes in, these trusts can also help reduce an estate’s tax obligations.

Non-charitable trusts in Michigan

Trusts can also be used for non-charitable purposes. Depending on the language used to create the trust, these legal tools can offer the creator a variety of benefits. A few of the many options available include:

  • AB living trust. Also known as the marital or credit shelter trust, this form is designed to help married couples maximize their federal estate tax exemptions. Essentially, this works by having each spouse place their assets into an irrevocable trust upon death. Although the trust is designed for the benefit of named beneficiaries, such as the couple’s children, the language of the trust contains a provision that requires it benefit the surviving spouse.
  • Totten trust. Also known as a "payable on death" account, this trust is set up by a creator in a bank or other financial institution for the benefit of another. These trusts are revocable, meaning the creator can change or cancel the trust at any time.
  • Special needs trust. This form of trust is designed specifically for the benefit of a beneficiary with special needs. When properly structured, these legal tools can provide financial assistance to those with disabilities or other impairments without disqualifying them from receiving benefits from Medicaid or other programs.

These are just a few of the many forms of non-charitable trusts that can be used to supplement an estate plan.

The importance of legal counsel

Whether looking to establish a charitable or non-charitable trust, it is wise to seek the counsel of an experienced trust lawyer. Putting together a proper trust is complex, as the language must reflect both the wishes of the creator while also meeting the requirements of state and federal laws. An experienced trust lawyer will discuss your goals and work to tailor an estate plan that meets your needs, including the use of trusts when appropriate.