Developing a solid and succinct estate plan is an important step towards ensuring your family’s future financial stability after you pass away. The most common method people use to distribute their assets is a will and last testament.
While this may work well for some small items in your estate, whatever is held solely in your name usually must then go through probate court proceedings. This can be a lengthy and expensive process for your loved ones and will needlessly eat into their inheritance. An entity more people are using now to protect their estate from court fees, taxes, and creditors in some cases, is a trust.
A trust is a legal entity that allows you to take assets held in your name and place them into the name of the trust, effectively giving up your possession of them. This is for the purpose of eventually giving them to named beneficiaries. You assign a trustee who is then in charge of the assets and their payout to the beneficiaries, in the best interest of the beneficiaries. This is particularly useful if an heir is unable to manage finances or has a mental disability.
While a will and last testament provides directions for distributing your assets after you pass away, a trust can come into effect before you die if you become incapacitated in any way and unable to make sound decisions.
Types of Trusts
There are a few different types of trusts that work a little differently depending on your specific needs
Living trust: A living trust is useful for while you are alive and well, allowing you to maintain control of your assets until, proven by court, you are no longer able to do so. At that point, you will have already named a successor trustee to take your place in managing the estate.
Revocable trust: When a trust is “revocable” that means you are able to make edits to it after it is created. So, throughout your life you are able to move assets in and out, and even terminate the entire entity.
Irrevocable trust: An irrevocable trust is completely unalterable by you once it is created. This is helpful when you’re working to minimize your taxes and are fully ready to let go of assets which are handed to your beneficiaries at a predetermined time or within a set schedule.
Funded vs Unfunded: Assets are added to most trusts during your lifetime, but if this doesn’t suit your needs, you can create an unfunded trust. This is basically the entity with nothing in it. You can then assign certain assets to be put into the trust once you pass.
If you would like to setup a trust for the benefit of your family, it is recommended that you do so under the guidance of an experienced estate planning lawyer. They can help ensure you choose the one that best fits your needs, while completing the legal paperwork correctly.