When it comes to estate planning, trusts present a variety of options to help individuals manage their assets and funds for the beneficiaries. There are various types of trusts with a revocable trust being the most common.
Trusts are used to avoid assets from the probate process thereby ensuring the named beneficiaries receive those assets quickly and not having to deal with creditors making claims on the assets. Additionally, trusts can provide tax benefits for you as the creator of the trust.
Trust Types
- Revocable Trust
Also sometimes referred to as a Living Trust, a Revocable Trust allows the grantor (the person who created the trust) to continually make changes to the terms of the trust as long as they remain alive and mentally competent.
The trust terms that can be changed depend entirely on the grantor’s wishes, allowing better flexibility in the grantor’s estate plans. For example, if you have a spouse listed as a beneficiary of the trust and then get a divorce, you can remove your ex as a beneficiary. You can also change the asset assignments, add or remove other beneficiaries, and generally make any alterations you want at any time.
- Irrevocable Trust
An irrevocable trust is less flexible because it cannot be modified or changed by you. Only your beneficiary can grant permission to change the terms of the trust. It involves discussion among your beneficiaries and once all the beneficiaries agree to the terms of this trust, the terms become binding and not subject to change.
There are a few reasons you might select an irrevocable trust. It can protect your assets from creditors and minimize your estate taxes. It can also protect your beneficiary from losing government benefits they depend on such as Medicare, which has strict limits on income.
- Joint Trusts
Two people serve as grantors of this trust type, effectively making them partners in controlling the assets and terms of the trust. This type of trust works great for people looking to make joint decisions regarding their estate plans and can be used by any two people regardless of their relationship.
Potential challenges may arise if the two grantors do have a relationship at the formation of the trust and that relationship changes for the worst. Consult with an estate planning attorney to verify how the trust works in those situations.
- Charitable Trust
Do you have a charitable organization you work with and like the idea of leaving funds to aid in the continuation of their work? Consider a charitable trust.
Charitable trusts generally have two types of sub-categories that address how beneficiary funds get distributed to the trust:
- Charitable Lead Trusts – The charity named in the trust gets a specified amount or asset first, and the other beneficiaries named in the trust get what remains.
- Charitable Remainder Trusts – Everybody else gets the assets and funds first, and the remainder goes to the charity in question.
There are other types of trusts such as a Special Needs Trust for a beneficiary with medical or physical disabilities that needs to be provided for or a blind trust which is created usually to avoid conflicts of interests.
To learn more about trusts and how to include a trust as part of your estate plan, contact the Law Office of Andrew Fessler today.
