A trust is one of the most important estate planning documents. With so many different types of trusts to choose from, it can be difficult to determine which one is right for you and your needs. Some of the most common types of trusts are broken down in this guide.
What is a Trust?
A trust is a legal document that is an important estate planning tool utilized by many different people to help hold their assets. This could include finances or property, that will then be distributed once that person passes away to their beneficiaries. There are several different types of trusts that a person can choose from.
Why Should I Establish a Trust?
While trusts are not a mandatory part of estate planning, they can be quite beneficial and can help to protect your assets. After you pass away, it may be easier to distribute your assets to your beneficiaries if you have a trust set up. Some trusts may be able to shield your assets from probate or from the IRS. Learning more about the different options that you have can help you plan for your future.
What is a Trustee?
A trustee is someone who oversees the distribution of the trust and could be the same person or someone different than the trust creator. The trustee should be someone that you trust, is organized, and will not have conflicting interests. In general, you will want to name someone that you feel close to and you feel could also take on the responsibilities that come with the role.
Different Types of Trusts for Estate Planning
Becoming familiar with the different types of trusts that are available to you will help you to make a more informed decision when it comes to your estate planning. Which trust will work best for you depends on your own individual needs.
Revocable Trust
A revocable trust is a trust that permits the person that created the trust to make changes to or terminate the trust at any time during their lifetime. Setting up a revocable trust may help to safeguard your assets from having to enter probate. The probate process can be lengthy and may cause emotional stress on your loved ones. Trusts that have to go through the probate process become public record. After you pass away, the assets that you have transferred over to your revocable trust will be distributed to your beneficiaries.
Irrevocable Trust
Once an irrevocable trust has been created, it cannot be changed or terminated. However, your assets in an irrevocable trust may be protected from creditors and lawsuits. Assets that have been transferred to an irrevocable trust will not be considered part of your personal property. This means that when tax time comes around, your assets will not be factored in.
Testamentary Trust
Testamentary trusts are also referred to as trusts under a will. These trusts do not take into effect until you have passed away. When you create a last will and testament, it will detail how your trust is to be created, as well as managed. It will also ensure that your beneficiaries receive what you want them to receive at a designated time. Assets that are in a testamentary trust will go through the probate process.
Special Needs Trust
A special needs trust can help to provide your disabled loved one with finances after you have passed away. This will not disqualify your loved one from receiving government benefits. The beneficiary will not have control over the funds, instead someone you name as the trustee will.
Charitable Trust
A charitable trust is a potentially great option for those that want to donate money to a cause or organization after they pass away. Since the assets included in a charitable trust are not considered personal assets, you will not have to worry about estate taxes. There are also two main types of charitable trusts. These are charitable lead trusts and charitable remainder trusts.
Charitable lead trusts give you the ability to set aside assets for one or more organizations. Then, the rest of the estate is given to your beneficiaries.
Charitable remainder trusts are when you place assets into the trust and receive income from the funding. After you pass away, the assets left will be given to one or more organizations.
Asset Protection Trust
An asset protection trust is exactly how it sounds; protect your assets. If you happen to default on a debt and your assets are in an asset protection trust, those assets will not be included in court proceedings. While this type of trust provides more security, they can also be more expensive for individuals to establish.
Bypass Trust
A bypass trust is a common option that many married couples choose. This is because when the first spouse passes away, their assets are placed into a family trust. There is also a marital trust. The surviving spouse will have ownership over the marital trust and can receive income from the family trust.
Which Trust is Right for Me?
To determine which type of trust is right for you, you will need to assess your own individual needs. Speaking with a professional estate planning attorney can help to guide you in choosing the option that fits in with your values, goals, and needs.
Schedule a Consultation with a Professional Estate Planning Attorney
Trusts are an essential part of the estate planning process. But, with so many different types of trusts, the process can become overwhelming quickly. Understanding your options when it comes to trust creation can help you make informed decisions to guide you on your estate planning journey. At Galanti & Copenhaver, our team prides themselves on providing an individualized experience to each and every client. Our unique approach allows us to assess your overall needs, so you can become familiar with the process as well. Our dedicated team is ready and willing to answer any questions you may have about the process. Schedule a consultation today to speak with a member of our team!