When people have a lot of assets to manage and loved ones to protect, they often make use of one or more trusts as part of their estate plans. However, you don’t need to have a great deal of money to benefit from a trust.
It’s important to know, however, that not all trusts are alike.
Some of the most common trusts used in estate planning
Different trusts serve different purposes, and exploring your options with an attorney can help you understand what does and does not work for your situation. Commonly used trusts include:
- Revocable trusts: Created during your lifetime, these trusts can help your assets bypass probate. They can be changed at will (or revoked) until your death as long as you have the testamentary capacity to do so.
- Irrevocable trusts: These trusts take the assets out of your hands entirely and cannot be changed after their creation. They’re often used as part of asset protection plans.
- Spendthrift trusts: These trusts are designed to protect an heir with problems, like drug addiction, gambling or a compulsive shopping habit, that could cause them to waste their inheritance.
- Asset protection trusts: These trusts are often held overseas, and they’re highly effective at removing the assets they hold from the reach of creditors and others.
- Special needs trusts: These trusts are specifically designed to benefit heirs who will need support when you’re no longer around to help them without interfering with their right to receive needs-based benefits like Medicaid and Supplemental Security Income.
- Charitable trusts: These trusts are designed to do some good in the world and simultaneously lower the taxes on an estate.
- Tax by-pass trusts: These trusts allow one spouse to leave the other considerable assets while reducing how much federal tax will ultimately be assessed against the estate when the second spouse dies.
These are likely not your only options. Parsing through the various choices you have when it comes to trusts isn’t always easy, so take your time and make sure that you have some experienced legal guidance.