Protecting your loved ones after you pass away is something that many people think about. You might decide to create your estate plan to help you do this. However, you should understand that not all estate plan components are created equally when it comes to making sure that your loved ones will get what you wan them to get.
Trusts play an important role in many estate plans, but you have to make sure that you choose the trust that is appropriate for the situation and purpose that you have in mind. Learning about a few basics of trust might help you along the way. It can also help to ensure that the trusts you include in your estate plan do what you want them to do.
Revocable and irrevocable trusts
One of the first things that you should know about trusts is that they are classified as either revocable or irrevocable. The difference between these two types is that a revocable trust can be changed before you pass away, but an irrevocable trust can't be altered by anyone once the trust is established.
Assets in an irrevocable trust are protected, which isn't true in a revocable trust. Asset protection is a big concern for many people, so be sure that you fully understand what it means to use a revocable trust. If you are thinking about an irrevocable trust, make sure that you take the time to carefully plan what assets you are going to place in the trust. Also think about any other points you will include in the trust.
Purpose of trusts
There are several different trusts that have very specific purposes. A life insurance trust can keep the proceeds of your life insurance policy protected from creditors. A special needs trust can help you provide for a person who is on income-based and asset-based programs. Charitable trusts provide a way for you to support a favorite charity when you pass away. Tax by-pass trusts might be helpful for spouses trying to pass on assets to each other, while constructive trusts are implied trusts.
If you have a specific purpose in mind for a trust, find out what options you have for trusts that might help you to meet the requirements to ensure the trust will serve the intended purpose. Because of the nature of some trusts, you need to make sure that you get all of your questions answered before the establishment of the trust.