Setting up an estate plan requires you to take stock of what assets you have and to determine what you want to happen to them when you pass away. Some people automatically assume that this task is always accomplished via a will; however, trusts are another option that can allow for greater control over asset distribution.
There are considerable benefits associated with trusts, but there are also some trade offs that you must think about if you’re exploring trusts as an option for your estate plan.
What is a trust?
When you create a trust, you have to fund it with assets. You get to choose the trustee, which can be an institution or an individual. The trustee – which can be you for the duration of your lifetime, depending on the kind of trust in question – takes care of the assets. Once you pass away, the trustee ensures the assets are handled based the instructions you’ve provided.
Types of trusts
There are many types of trusts that you can use for your estate plan, and each one is either classified as either revocable or irrevocable.
Revocable trusts give you flexibility because you can change the terms while you’re still alive. The tradeoff for this is that the assets held by the trust are considered part of your estate for tax purposes, and creditors can make claims against these assets since you still have control over them.
Irrevocable trusts provide protection from creditor claims against assets, as the assets aren’t considered your property or part of your estate. The tradeoff for those benefits is that you don’t have any control over trust assets once you create and fund an irrevocable trust. This means that you can’t change the trust unless you can get the beneficiaries to agree to the changes or you can get a court to say that you can make alterations.
Benefits of trusts
The assets in a trust can typically be passed along to your loved ones must faster than they would if they were being distributed via a will. This is because trusts don’t go through probate.
Also, since you can set terms for trusts, you get to outline how and when the assets will be distributed. This is particularly helpful if you have beneficiaries, such as individuals who are young or may not make wise financial decisions and/or who may not need their full trust benefits all at once.
Because the purpose and benefits of trusts can vary, it’s best to discuss your situation and goals with a legal representative who can help you to determine how best to structure your estate plan to meet your needs and goals.