The most familiar estate planning document is the will. It is a necessary component, and it may be sufficient for people who have limited assets. However, for those who have more valuable or complex estates, or who simply want to maintain more control over them, trusts may be more beneficial.
A trust is the transfer of your property or money to a third party (trustee), who manages the asset for the beneficiary until an appointed time. This arrangement comes in many forms, each offering its own advantages.
Different types of trusts
Unlike a will, a trust can go into effect while you are still alive. This type is a living trust, and you can make it revocable or irrevocable. Revocable means you can make changes to the trust up until your death. This is helpful for unexpected life changes, such as divorce or the death/debilitation of the beneficiary.
Irrevocable means you give up full ownership of the asset and, therefore, cannot make any changes after creating the trust unless the trustee and beneficiary agree to those changes. However, this setup protects the property from taxes, divorce settlements and other threats.
A testamentary trust is one you include in your will and only becomes active once the probate process is over. All these types only describe the overarching categories. There are many kinds of specific trusts, such as an IRA trust or generation-skipping trust, to meet certain needs.
How trusts help you
The funds from trusts can go to beneficiaries as a lump sum, or in payment installments. Trusts can serve as the means to the following ends:
- Make the distribution of your money last for generations.
- Provide for minor children or adult children with special needs.
- Avoid estate taxes.
- Donate to charitable organizations.
- Prevent beneficiaries from wasting your asset.
With so many options available, and a high risk of scammers, it is important to utilize professional and reputable legal and financial services to ensure proper trust establishment.