On your path to creating a comprehensive estate plan, your first step is usually to draft an enforceable will. However, a will may not provide all of the detailed guidance and control you need, especially if there are complicated family dynamics or you have complex assets such as a business.
This is when you need to be aware of your trust options. Depending on your estate planning goals, a trust can be an excellent tool for avoiding probate, minimizing taxes, ensuring Medicaid eligibility and providing for loved ones. Here let's consider some different kinds of trusts.
There are two general types of trusts: revocable and irrevocatble.
A revocable trust, often called a living trust, is created during your lifetime and can be modified or revoked entirely if you so choose. As the trustmaker, you transfer the title of the property to the trust, and you serve as the initial trustee. You can also remove property from the trust during your lifetime.
A revocable trust is a great tool for avoiding probate, as the assets left in the trust at the time of death remain property of the trust and not of the estate. However, a revocable trust may not protect assets from the trustmaker's creditors. Typically, a revocable trust becomes an irrevocable trust after the trustmaker passes away.
An irrevocable trust cannot be modified or revoked once it is created, and the property transferred to the trust must remain there until the assets are distributed in accordance with the terms of the trust document. In other words, an irrevocable trust is an excellent tool for protecting assets from creditors and ensuring that loved ones are provided for.
You can choose a trust for your specific situation.
Many kinds of trusts exist to achieve specific goals. Here are a few:
- A special needs trust can provide for a loved one with special needs without causing that individual to lose government disability benefits.
- A spendthrift trust can be established for a loved one who may not possess the financial acumen to handle money and assets. Assets from this type of trust can be distributed how and when the trustmaker specifies.
- A charitable trust can be created not only to benefit a chosen charitable organization, but also to minimize or avoid altogether estate and gift taxes.
To explore your full range of trust options, it is a good idea to speak with an experienced estate planning attorney.