A trust is an estate planning instrument that takes effect while you are living and survives your death. It can provide valuable protections to both you and your beneficiaries. There are many types of trusts for estate planning, depending on your needs and ultimate goals. The key is selecting the right type. Here’s a look at some of the most used types.
Revocable trusts are extremely popular because they can be changed, and they help avoid probate. Assets can be added to or removed from the trust at any time. The trust itself can be revised as well. You, as the trustee, maintain full control during your lifetime. Upon your death, the designated backup trustee becomes responsible. You can name your children as beneficiaries but allow the trustee to maintain oversight until your children reach a certain age, at which point they receive the full proceeds from the trust. This is one of the most popular types of trusts for estate planning for families with children.
As the name implies, irrevocable trusts cannot be changed regardless of whether you are living or deceased. Once assets are placed in the trust, they permanently belong to the trust. Upon your death, the terms of the trust are activated for the benefit of your designated heirs. Irrevocable trusts are often used to shield assets (since those assets no longer belong to you as an individual), but they have limitations that should be well understood in advance.
If you plan to leave your assets to charity, a charitable trust can be set up in advance. Charitable trusts can provide tax benefits during your lifetime. They can also provide estate tax savings upon your death since you will have a lower estate value given the prior contributions made to the charitable trust.
Special Needs Trusts
If you have dependents with special needs, you may be concerned about whether assets you bequeath upon your death will disqualify them from government benefits. A special needs trust is designed specifically to address this. It is created for the benefit of your dependents but they neither control distributions nor can revoke the trust. It allows your dependents to receive financial support from the trust and from government programs.
Tax By-Pass Trust
For married couples, a tax-bypass trust can provide tax savings to their children and other heirs. Typically, when one spouse dies, assets may be transferred to the other spouse without much tax obligation. However, when the second spouse dies, significant taxes may apply when assets are transferred to the surviving spouse’s heirs. A tax-bypass trust can help mitigate that burden and lead to significant savings.
Additional Types of Trusts for Estate Planning
The above are just a few examples of the different types of trusts for estate planning. Gun trusts, totten trusts, spendthrift trusts, constructive trusts, and asset protection trusts are a few others that you might consider.
Contact our team for assistance with creating trusts for your estate plan. We’ll help you understand your options and achieve your estate planning goals.