A trust is a fiduciary relationship where one party, a trustor or grantor, gives rights to another party, the trustee, to hold and manage assets on behalf of beneficiaries. The trustee ensures the assets are managed according to the grantor's wishes and in the best interests of the beneficiaries. Trusts take effect after you transfer assets to them and can be active during your lifetime and after you pass on.
Are you wondering why you should include a trust in your estate plan? With a trust, you avoid the probate process, protect assets from creditors, reduce family conflicts, preserve family wealth, protect beneficiaries, and provide for individuals with special needs. Also, a trust maintains your privacy and confidentiality and can help if you become incapacitated.
A trust can help protect your family, loved ones, and legacy after you're gone. However, to achieve the intended goals and enjoy all the benefits, you need to create the right trust to match your needs and situation. To get started, read on to learn about the common types of trusts.
Revocable Trust
A revocable trust, also known as a revocable living trust, is a type of trust where the grantor has the right to revise, alter, revoke, or terminate the trust on their own accord. A revocable trust is flexible since the transferred assets and specified guidelines aren't permanent. However, the revocable trust will become irrevocable upon the grantor's death.
If you opt for a revocable trust, you can name yourself as a trustee or co-trustee and pick someone else as a successor trustee when you pass on or if you're unable to manage the trust. A revocable trust is beneficial to avoid the probate process.
Irrevocable Trust
An irrevocable trust can't be amended, changed, or revoked after it is created. After the transfer of assets to an irrevocable trust, the grantor renounces ownership and management of these assets. The assets are no longer a part of their personal estate, and they can no longer take them back.
While irrevocable trusts are inflexible and might look unattractive, they are ideal in certain situations. For instance, these types of trusts are ideal for individuals with large estates who want to reduce tax liability. Also, irrevocable trusts will protect your assets from creditors and lawsuits.
Special Needs Trust
If you have a dependent with special needs, you may establish a special needs trust to provide for them when you're not there. Also, this trust ensures your special needs beneficiary doesn't become ineligible for government benefits.
Under normal circumstances, an individual receiving government benefits may become ineligible if they receive an inheritance or a gift receipt. The special needs trust will provide the dependent with income without disqualifying them for supplemental government aid.
Charitable Trust
A charitable trust is set up to benefit a charitable organization or the public. These trusts are irrevocable and enjoy a certain degree of tax benefits. For instance, a charitable trust is liable for lower or no estate and gift tax even if generating income.
Apart from tax benefits, a charitable trust can generate income, preserve highly appreciated items, and give you control. However, these benefits will vary depending on the type of charitable trust you create. Make sure to consult your estate-planning attorney for guidance.
Establishing a trust can help protect your legacy and assets and ensure the assets get to your dependents according to your wishes. However, to ensure you create the right trust and a valid one, seek advice from an estate-planning attorney. Contact legal experts at Donald B. Linsky & Associates PA for tax planning, estate planning, real estate, elder law, and business legal needs.
