Most people understand the concept of a will. But ask them about what a trust is and how it can be useful, and many will not even hazard a guess. Long thought to be the domain of the rich who were looking for ways to pass large amounts of money and assets on to their heirs, a trust is a helpful estate planning tool that can be used in a variety of different circumstances by people of varying financial means.
One of the most popular and versatile examples is the revocable trust. Typically, an individual puts their assets in a trust and then names themselves as the original trustee. This allows them to maintain control over their assets until a time of death or incapacitation. At that time it is then passed to the listed beneficiaries or even a new trustee. The main advantage of this is that it allows the heirs to avoid probate, which is a process that can be expensive, contentious and lengthy.
Along with the living trust, there are a variety of different types of trusts. These include the following:
- IRA beneficiary trust – This allows beneficiaries to keep assets under tax-deferred status.
- Irrevocable trust – This trust cannot be altered in any way by anyone, thus doesn’t allow for flexibility.
- Special needs trust – This provides for those with disabilities, but it can also be applicable to beneficiaries who have a history of addiction, financial recklessness, etc.
- Spendthrift trust – This allows the trust to be passed on, but does not allow the beneficiary to sell or give away interest in it until it is distributed. It is also protected from the beneficiary’s creditors until it is distributed.
Just because you have a trust, doesn’t mean that you still shouldn’t have a will. At a basic level, a will still gives you control over where and when assets are distributed and by whom.
Effective estate planning can provide a number of different options and packages, including a combination of a trust and will. Each individual’s situation is unique, so it is always wise to speak with an attorney with a strong background in estate planning. They can tailor a plan that works for you and your family, ensuring that loved ones are cared for under all foreseeable circumstances.