Estate planning is not hard to understand, but there can be many different aspects to it. For example, wills and trusts. For many people, they often mix the two up and basically think they are both the same thing. However, they are very different.
What is a trust?
There can be many kinds of trusts which is good because everyone’s situation is different, and you can find a trust that works best for you. A trust is a legal entity that you can create (the trustor) by which a second party (the trustee) holds the rights for the benefit of a third party (the beneficiary).
Advantages of a trust
One of the biggest advantages of a trust which draws many people to them is that a trust will avoid probate court. Since probate court can be part of the public record, by skipping probate using a trust means you can keep your matters private. A trust will also have different protections and tax benefits that make them desirable to many people.
Types of trusts
While there are many different types of trusts that can be set-up, these are typically the most common.
Revocable trust – This is often referred to as a “Living Trust” and you as the trustor will maintain complete control over the trust and can change, amend or revoke the trust at any time during your lifetime. You would use this type of trust for asset management, to avoid probate and for tax planning.
Irrevocable trust – This type of trust means that you as the trustor are not able to make any changes or alterations during your lifetime and the trust cannot be revoked after your death. Because the assets in this trust are unable to be moved back out into your possession, there can be tax benefits to this trust. This means assets can be transferred to a beneficiary immediately upon your death.
Charitable trust – If you have a certain charity or non-profit organization that is of special significance to you that you would like to have as a beneficiary, you can set up this trust as a benefit to that organization. You can continue to build up the trust over your lifetime and the assets will be given out at the time of your death, once again either avoiding or reducing any tax implications.
Pet trust – While certainly unique, this type of trust is gaining in popularity and is shown as an example of the different types of trusts you can get. Many people will use a pet trust to ensure that their pet receives proper care following your death.
If you have questions about trusts or want to know how a trust can work for you in your situation, you should contact an estate planning attorney who can assist in breaking down the many types of trusts available.