Establishing the right type of trust can help you meet your estate planning goals. When you have legal documentation in place, you have the peace of mind of ensuring financial support for surviving family members.
These are the most common types of trusts to consider when planning your estate.
Also called revocable trusts, this type of trust allows you to change or revoke its terms if your estate plans change. A living trust consists of property transferred to the ownership of the trust, a trustee who manages the assets held in the trust and a benefactor who will inherit the trust upon your death. Many individuals use a living trust to avoid the cost and extensive process of probate. However, creditors can access property owned by a living trust.
You cannot change this type of permanent trust after its creation. Irrevocable trusts provide tax benefits by separating the assets held in the trust from your taxable estate. Unlike with a living trust, assets in an irrevocable trust are safe from creditor seizure.
If you plan to donate a portion of your estate to a qualifying nonprofit organization, you can establish a charitable trust. Not only will your donations support a cause close to your heart, you can also partner with other benefactors to increase the size of your trust. With this type of trust, you can derive income during your lifetime through the investments held in the trust. When you die, the remainder reverts to ownership of the organization.
Special needs trusts
If you have a spouse, child or loved one who receives federal disability benefits, this type of trust allows you to provide financial support without jeopardizing those essential benefits. An individual can use the funds in this type of trust to purchase items beyond what government agencies cover.
This is only a brief overview of the possible trust arrangements available for an estate. Careful planning helps ensure that the next generation can derive full benefit from these assets.