What Type of Trust Should You Create for Your Estate?
A trust can be a great way to protect your assets and preserve your wealth. There are many benefits of establishing a trust including providing income to your family, passing wealth to your heirs, avoiding excessive estate taxes and the long probate process. But how do you determine which type of trust is best for you and your family and more importantly, how do you determine the most effective means to achieve your objective?
Estate and Trust Planning.
An effective estate and trust plan begins with documentation carefully drafted by a qualified attorney with knowledge of your specific situation, objectives, and current laws. Without a knowledgeable attorney and the appropriate documentation, you and your beneficiaries may not reap the benefits of a trust. The most common trusts are briefly described below:
- Asset Protection Trust: For persons working in high-stakes professions with significant liability, such as doctors and surgeons, an asset protection trust can be an important part of a comprehensive plan to protect hard-earned assets from creditors and judgements.
- Revocable Living Trust: A revocable living trust is an estate-planning tool with wide appeal. Almost anyone with substantial or complex assets might benefit from a revocable living trust as opposed to a simple last will and testament. The primary benefits of a revocable living trust are privacy and ease of management.
- Special Needs Trust: Anyone who loves a person with a disability, whether or not they are directly involved as caretaker or guardian, can set up a special needs trust. Caretakers, parents, grandparents, and spouses have all established special needs trusts to ensure that, even after their own deaths, their disabled loved ones continue to receive care and comfort.
- Irrevocable Trust: In contrast to revocable living trusts, which can be altered at any time by the grantor, once an irrevocable trust is set up it can never be altered. Furthermore, the assets within an irrevocable trust are forever out of the control of the grantor. Learn if an Irrevocable Trust is right for you.
- Charitable Trust: The most common kind of trust is a charitable remainder trust (CRT). In a CRT, assets are transferred from a benefactor to a non-profit organization. Typically, these non-profits must be recognized by the IRS as tax-exempt organizations. When setting up a CRT, you can name yourself or family members as beneficiaries.
- Life Insurance Trust: The primary purpose of a life insurance trust is to hold a life insurance policy to provide liquidity upon death. Additionally, life insurance trusts can provide significant advantages when it comes time for your heirs to pay estate tax.
Your Wealth and Your Legacy.
The purpose of establishing a trust is to ultimately help you better realize a vision for your estate and, in turn, your legacy. Therefore, it’s important to let your goals for your estate guide your discussion with your attorney as they help determine what kind of trust and provisions make sense for you. It is vitally important that the trust be properly drafted and funded, so that you and your beneficiaries can fully realize all the benefits available.