Trusts are one of the basic building blocks of estate planning. They are popular because they allow you, the grantor, to set up an untouchable “container” or account to put your assets and safeguard them from taxes, probate proceedings, and more. Different types of trusts allow you to better prepare for the future of the loved ones you leave behind.
Revocable and irrevocable trusts
The two broad types of trusts are revocable and irrevocable trusts. As the names imply, you can revoke or change a revocable trust but can’t modify an irrevocable one.
Revocable trusts are also known as living trusts. This type of trust offers more protection for you and your assets while you’re still alive. If you gain new property from a divorce, you can update your revocable trust to include the new assets or change the beneficiaries if necessary.
Moreover, if you want to avoid probate and make it easier for your beneficiaries to receive the assets they will inherit from the trust, a revocable trust fits your needs.
Establish an irrevocable trust if you want to protect your assets from estate and gift tax or minimize tax liability. This type of trust offers greater protection against lawsuits and creditors than living trusts. Take note that revocable trusts turn into irrevocable trusts upon your death.
Special types of trusts
Aside from the two main types of trusts, there are several other types as well. These specialty trusts offer specific benefits or cater to certain needs. Some of these are:
- Testamentary trusts: This is also known as a will trust since it’s created through a last will. This type of trust goes through the probate process.
- Spendthrift trust: This type of trust allows you to leave restrictions on using your trust assets and specify when and how your beneficiaries may access the assets to prevent squandering them.
- Special needs trusts: If you have a loved one with special needs, leaving them assets through a special needs trust allows them to still qualify for government benefits despite the inheritance they receive.
Plan ahead to safeguard your legacy
Trusts aren’t just for people with large estates—trusts are for anyone in any financial situation. However, it’s crucial to choose the right type of trust and set it up properly to protect your loved ones and your assets. Consulting a legal professional specializing in estate planning helps you plan for the future with confidence.
