Passing down assets to your beneficiaries is one of the primary goals of creating an estate plan. While many people think they can accomplish this aim effectively via their will, that’s often not a sufficient approach. Certain assets are better handled via a trust.
If you’re creating an estate plan, learning about trusts and how they work can help you to determine if this is a suitable option for your situation. If you decide that you want to use a trust, you’ll have to decide what specific type of trust meets your needs.
Revocable versus irrevocable trusts
Trusts all fall into one of two categories – revocable or irrevocable. A revocable trust is one that you can change, but an irrevocable trust can’t be changed in most cases. An irrevocable trust can only be changed or canceled if the beneficiaries agree or the court orders it.
One area where these differ is the protection from creditors. Creditors can claim the contents of a revocable trust because you retain control of those assets. Creditors can’t claim those in an irrevocable trust because you don’t have control of those assets.
Both types of trusts don’t have to go through the often costly probate process. This means that the beneficiaries can get what they’re due from the trust as quickly as possible after you die. It also provides privacy since there isn’t a public record of the trust’s contents.
Specific intentions of some trusts
Some trusts have specific intentions. For example, a special needs trust is meant to provide support for a person who relies on needs-based programs. Because the trust is set for specific support and administered by a trustee, the assets in the trust don’t count toward the beneficiary’s asset limit.
There are a host of other specific intention trusts available. It’s best to discuss your wishes with your legal representative so they can offer guidance about the types of trusts available designed to meet those needs. Remember, a trust is only one part of a comprehensive estate plan, so it’s helpful to view trust creation as one component of a broader approach.