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How people can choose the right type of trust for their estate plan

On Behalf of | May 15, 2024 | Estate Planning |

Adding a trust to an estate plan can result in a host of different benefits. Trusts could help people qualify for government benefits later in life when they live on a fixed income. They can give an individual more control over how their family members use inherited resources or protect the beneficiaries from major estate tax obligations.

Many people feel overwhelmed about the idea of creating a trust even though they might benefit from doing so. Simply trying to choose the right kind of trust can be a challenge, as there are an overwhelming number of options.

How can someone looking to expand or strengthen their estate plan choose the right kind of trust?

A close look at goals is necessary

There is no one trust that works optimally for every situation. There are many different types of trusts, and they generally fall into one of two categories. People create either revocable or irrevocable trusts.

The terms that they integrate into those trusts can then make them more specialized instruments. Some people create special needs trusts to provide resources for a loved one with medical challenges. Other people create living trusts to protect their resources as they age.

Revocable trusts are trusts that people can adjust or change in the future after creating and funding the trust. People can add new assets to the trust or otherwise change the terms for managing and distributing trust resources. Revocable trusts are useful for those who want to retain control over their assets, preserve their privacy during probate court and control the use of assets after they die.

Irrevocable trusts offer more extensive protections but also less control. As someone may be able to tell from the name, an irrevocable trust is not changeable after someone creates it. Irrevocable trusts therefore are less prone to abuse and can offer more thorough protection of assets as people age. They can help someone qualify for state benefits and avoid creditor lawsuits.

The goals someone has when creating a trust can directly influence what type of trust they may ultimately need to create. Discussing personal circumstances and estate planning goals at length with a skilled legal team can help someone determine whether a revocable or irrevocable trust is the right choice in their case. They can then add additional terms that make the trust a more specific and nuanced legal instrument.