For those who are not familiar with the subject, estate planning can feel overwhelming. It can be difficult to understand trusts, in particular, as these tools come in so many forms. You may not know what type of trust you want, and so you don’t know where to begin.
In this blog post, we will provide some introductory information about types of trusts that could help you decide how to create your estate plan.
A trust is essentially a way of arranging the legal ownership of property. If you have property that you want to place in trust, you are known as the grantor. The person or organization that is in charge of the assets is known as the trustee. The trustee manages the assets for the benefit of the people or organizations you have named as your beneficiaries.
The trustee has a fiduciary responsibility to manage the property competently so that it is available to the beneficiaries. The terms of the trust itself dictate how and when the assets will be distributed to the beneficiaries. For instance, the grantor may want the assets distributed once a year in the form of checks.
Trusts that go into effect during the grantor’s lifetime are known as living trusts. A living trust is a powerful way to protect assets, but exactly how much protection it provides depends on the type of trust.
The two main categories of living trusts are revocable and irrevocable. The difference, as the names imply, is that the grantor can make changes to the terms of the trust, or even dissolve the trust altogether if the trust is revocable.
By making a trust revocable, the grantor retains a degree of control over the trust that they would not have with an irrevocable trust. However, an irrevocable trust has some powerful advantages.
Irrevocable trusts are generally safer from taxes, creditors and other threats to trust assets.
As noted above, trusts can be adapted and customized to many situations and needs. If you think you want a trust as part of your estate plan, you may begin by deciding what is most important to you: control over the property, or protection of the assets?