Different Types of Trusts: Which is Right for You?
The purpose of establishing a trust is to allow a third party to hold your assets on your behalf and for the benefit of a third party beneficiary. Establishing a trust is an important part of your estate planning process. Even if you do not have many assets, a trust can save your family time and money at the time of your death.
There are different types of trusts available to meet your specific needs. Types of assets, number of beneficiaries and your personal wishes should be taken into consideration when determining which type of trust is best for you. A trusted attorney can also be of assistance in making this important decision.
As the name indicates, a Revocable Trust can be amended at any time. If you desire flexibility or want to be able to potentially remove assets from the trust at a later time, a Revocable Trust is your best option. This type of trust only becomes irrevocable at the time if your death. A Revocable Trust may help you avoid probate, but it does not help in the context of planning for long term care.
Irrevocable Trusts cannot be revoked at any time. We typically use Irrevocable Trusts to help people structure their assets when planning for long term care expenses. People may also use Irrevocable Trusts to fund legacies for children or to give gifts or property or life insurance monies. It’s important to note that once an Irrevocable Trust is established, the assets cannot be taken back out of the trust, although you can still maintain the ability to change beneficiaries and receive income from trust assets.
A Testamentary Trust is usually associated with a Will. This type of trust only becomes activated upon your death. Since a Will can be changed at any time, this can also be considered a Revocable Trust. Funds that are moved to a Testamentary Trust upon death may be subject to probate and transfer taxes.
A Marital Trust provides benefits to a surviving spouse. The assets included in this type of trust become part of the living spouse’s taxable estate.
If you are married, a Bypass Trust can be used to avoid estate taxes. This is also known as a Credit Shelter Trust.
Any type of trust that can be invoked or changed while you are still alive is considered a Living Trust.
State laws regarding trusts can vary, so it is helpful to have an attorney at your side when establishing a trust. At Wilson Law, P.A., we have years of experience in helping individuals determine the best way to handle assets at the time of their passing. Contact us for a free consultation.