People in different situations require different estate planning documents. Some testators only need a will to appoint a guardian for their minor children or name beneficiaries for their assets after they die. Others may want more thorough estate plans that include trusts. Trusts can help reduce tax liability or the risk of losing valuable assets to creditor actions. They can help prevent beneficiaries from losing state aid or misusing an inheritance.
Adding a trust to an estate plan requires careful consideration. Not only does someone have to find the right way to fund a trust, but they need to choose an appropriate type of trust. How can a testator choose the right kind of trust to integrate into an estate plan?
By learning about the types of trusts available
There are two main categories of trusts that people create. There are both revocable and irrevocable trusts. Revocable trusts, which people sometimes refer to as living trusts, are useful for those who may need to change trust terms as time passes.
Revocable trusts are open to adjustment throughout someone’s life. It is possible for the trustor to revise or even dissolve the trust as their circumstances change. Irrevocable trusts are effectively set in stone once someone creates and funds them. They are particularly useful in cases where people want to avoid potential collection activity or mitigate tax risks after they die.
By thinking about personal goals
There are various types of trusts within each of the two main categories of trusts. What separates those different types of trust is the intent behind the person creating them. A special needs trust, for example, specifically exists to provide practical support for an individual with special needs.
Some people, such as those starting blended families, may create a marital trust as a way to provide for a spouse without stripping their children of any chance of inheritance. Others fund charitable trusts to support non-profit organizations. There are generation-skipping trusts for those who want to leave assets for their grandchildren but not their children. Spendthrift trusts are an option when trustors worry about beneficiaries squandering their inheritance.
Thinking about the intent behind a trust can help people select the right type of trust to create and fund. Those who take the time to explore their options can potentially create the most thorough and effective estate plans possible.