Trusts are very powerful tools for protecting oneself and establishing a meaningful legacy. Many modern estate plans make use of trusts. Although some people think of a trust as a tool for the incredibly wealthy, many middle-class and working-class households can also benefit from the establishment of a trust as part of a broader estate plan.
Trusts can help reduce estate tax risks and protect people from collection activity that endangers their most valuable assets. Trusts can also help people qualify for state benefits and maintain more control over how beneficiaries use and inheritance after they die. If someone decides that they might want to use the trust, the next step in the process typically involves selecting the right type of trust. These are some of the different trusts can people can utilize when estate planning.
Revocable and irrevocable trusts
There are many specialized types of trusts, but all trusts generally fall into one of two categories. Irrevocable trusts become separate legal entities at the time of their creation and are not changeable. Revocable trusts, on the other hand, are excellent tools for those who believe their circumstances will change and who envision likely updating some of the terms included in their estate plan later. Both categories have their benefits and drawbacks depending on someone’s circumstances and goals.
There are trusts for many purposes
Most trusts that people include in their estate plans have a specific intention. Each type of trust has its uses for people in certain personal situations. For example, a Special Needs Trust helps provide supplementary resources for someone with special needs without making them ineligible for any state benefits on which they currently depend. A generation-skipping trust allows a testator to leave resources for grandchildren but not children. A charitable trust allocates resources to support a particular goal or organization.
Alternatively, some married couples create marital trusts to support one another without disinheriting their children or incurring taxes. There are also bypass trusts used to reduce the taxes that someone’s beneficiaries must pay when inheriting trust assets.
Each type of trust has unique benefits to offer individuals and also some limitations. Discussion of someone’s goals and the resources they intend to use to fund the trust can be a good starting point for determining the best option for someone’s estate planning needs. Seeking legal guidance to learn more about trusts and other estate planning tools can potentially help people to care for themselves and provide for their loved ones as they age.