While we know it is important to think about the future, it can be difficult to think about certain events. Death is one of those events. Although it is a fate each of us will face, no one wants to truly think about their demise and leaving their loved ones behind. But by thinking about one’s estate and creating a will and trusts, one can consider and care for their loved ones after their passing.
Establishing a family trust
An estate plan can consist of many documents. With regard to trusts, there are various types, and depending on your needs and goals, one or several may be more suitable for you than others.
If your ultimate goal is to ensure that your family members obtain a certain portion of your wealth after your death, creating a family trust is likely the best route to take. In short, a family trust establishes a legally binding agreement with regard to which heir(s) will receive a certain portion of your wealth. However, based on your circumstances and goals, certain family trusts may be a better option than others.
Different types of family trusts
When considering the most common types of family trusts, seven will be discussed. The first is a living trust, which holds your assets while you are alive, providing a plan for their division when you die. The next is a marital trust. This is an irrevocable trust that benefits your spouse and helps them avoid federal taxes during its transfer. The third is a charitable trust, which is designed to leave assets to a specific charity.
Another type is a generation-skipping trust, which is designed to provide large gifts to younger generations minus heavy estate and gift taxes. A special needs trust is designed for those receiving SSI benefits or Medicare, protecting the income from the trust so it is not counted toward the income caps for these programs.
The sixth type is a spendthrift trust. This type of trust limits how a beneficiary can access their assets. The final type is a testamentary trust, which is created through a will and remains irrevocable once you die.
The estate planning process can include many decisions, some of them very complex. As such, it is important to fully understand the process and how best it could meet your current and future needs.