Advice from a Trust Lawyer
Different Types of Trusts
A trust is an account that is managed by an organization or a person on behalf of another organization or person. There are many different types of trusts. A living trust is simply a specific type of trust. Living trusts are often used as part of estate planning for the purpose of transferring assets after the grantor’s death.
How Does a Living Trust Work?
The grantor of a living trust usually creates that trust during the grantor’s lifetime. The grantor can change or revoke the trust. However, once the grantor is deceased, the trust can not be revoked or modified. The trustees are required to adhere to the rules outlined in the creation documents when distributing property or paying taxes.
What Are the Advantages of a Living Trust?
Living trusts are used in conjunction with wills or other types of trusts. A living trust offers multiple advantages:
- Protects against incapacity of beneficiaries and grantors
- Simplifies the succession of trustees
- Can contain healthcare and end-of-life provisions
- Reduces or eliminates delays and expenses caused by probate
- Allows for privacy
- Beneficiaries can immediately access assets and income of the estate
What Are the Drawbacks of Living Trusts?
Different states have different rules about how property placed in a trust is treated. Some types of property may lose protections or be otherwise negatively impacted by being placed in a trust. In these cases, it can be wise to exclude that property from the trust until after the grantor’s death.
Because the grantor is considered the owner of the assets in a living trust, placing assets in this type of trust does not protect them from creditors. Additionally, all income placed in a living trust remains taxable on the grantor’s personal tax return.
What Other Types of Trusts May Be Used in Estate Planning?
Sometimes a different type of trust is used to protect specific interests, gain a tax advantage, or for other reasons. There are several types of trusts used in estate planning:
- Testamentary trusts
- Irrevocable life insurance trusts
- Qualified domestic trusts
- Charitable remainder trusts
- Special needs trusts
The decisions about which type of trust or trusts to establish, or whether to use a trust at all should be based on the type of assets you have, your intended beneficiaries, and your financial goals. If you need help determining how to set up a trust, contact a trust lawyer in your area for assistance.