Trusts are among the most efficient and versatile tools that you can use when creating an estate plan. Trusts provide you with a variety of options that can help you to distribute assets in accordance with your wishes.
It’s important to note that not all trusts are created equally. Certain trusts have specific purposes, but they all fall under one of two classifications that are determined by whether they can be changed or not once they’re created. These two classifications are irrevocable and revocable.
Irrevocable trusts are established as a permanent estate planning option. Once assets are moved into this trust, they’re no longer under the ownership of the person who transferred them. While this type of trust has limitations, those same limits provide considerable protection.
One protection is that your creditors can’t stake claim to the contents of the trust once it’s funded. This enables you to pass down assets to your loved ones without worrying about lawsuits taking them away. This is especially beneficial for people with high-risk occupations subject to legal claims.
Various trusts have different purposes. For example, a special needs trust, an irrevocable trust, is a beacon for those catering to beneficiaries with disabilities. By channeling assets through this trust, you can ensure your loved one has the financial means to thrive without endangering their access to essential government assistance.
Charitable remainder trusts are another notable type. They promote philanthropy by providing charities with a stream of income for a specified duration, after which the residual assets return to non-charitable beneficiaries. Another type is the life insurance trust. It holds a life insurance policy, ensuring the death benefit isn’t considered part of the taxable estate.
Revocable trusts are the opposite of irrevocable trusts because they can be altered or completely canceled if you change your mind about the terms or beneficiaries. You maintain control of the assets even after the trust is funded. The downside to this is that these trusts don’t provide the assets with protection from creditors and they don’t have the same tax advantages as irrevocable trusts.
Remember, a trust is only one component of a comprehensive estate plan. Seeking legal guidance is important so you can develop a strategy that accomplishes your goals.