Types of Trusts
There are many different types of trusts, but most of them fall into two categories: revocable and irrevocable.
Revocable Trust (Also Known As A Living Trust)
A living trust is a type of trust that can be changed throughout your lifetime. They are appropriate for people that have a complicated asset structure. For example, if you have multiple investment accounts, multiple business interests, and/or have property in different states, a living trust could benefit you.
Having a revocable living trust ensures that it is easy for your family to access your assets when you pass away or become incapacitated. By making your wishes clear, you avoid family conflict.
One mistake many people make with a living trust is failing to properly fund it. To fund a living trust, you must transfer the ownership of your home, real estate, and bank accounts to the trust. You will also typically list the trust as the beneficiary of your retirement accounts. We understand that this can seem scary, and you may feel like you are losing control of your assets. However, this couldn't be further from the truth. When you create a revocable trust, you retain the right to take your assets out, change who the trustees are, and change the distribution to your beneficiaries.
A living trust can be amended by the creators of the trust simply by signing a declaration that states they are making changes to the trust. That declaration needs to be appropriately witnessed and should be notarized.
An irrevocable trust is a type of trust that cannot be changed. This type of trust is appropriate for people that want to leave money to their beneficiaries, but do not want to leave it vulnerable to the government or creditors.
An irrevocable trust involves a sort of trade-off. You give up control over, and ownership of, the assets you put into it. However, by doing that, you also gain protection from future creditors and reduce your exposure to estate taxes.
An irrevocable trust can be beneficial for people who are worried about long-term care costs as they grow older. This includes the cost of nursing home care and medical costs.
Specialized Types of Trusts
There are many more types of trusts that fit unique and specific needs. For example,
- A special needs trust can make sure your special needs children are properly cared for when you pass away.
- A charitable remainder trust can help you reap tax benefits from charitable giving.
- A Medicaid trust can protect your assets from the exorbitant cost of long-term care, including nursing home costs.
- A children's trust allows you to establish certain safeguards so that your child doesn't spend their inheritance irresponsibly. The trustee will act as a gatekeeper in this instance. You can also list requirements that your child must meet to receive their funds, such as graduating from college.
How do I pick a trustee?
One of the most important decisions you will make when creating a trust is who to name as trustee. The trustee is responsible for overseeing the trust, making sure that the terms of the trust are followed, and distributing the assets to the beneficiaries.
Many people select a trusted family member or friend to be their trustee. This person should have a similar belief structure to you regarding how assets should be managed and the exercise of discretion in making distributions to the beneficiaries. You can also appoint a professional trustee. A professional trustee is someone who has experience managing trusts and can handle the administrative responsibilities associated with them. This can be especially helpful if you live far away from your beneficiaries or if you are concerned about family conflict. If you would like more information on trusts and their uses in estate planning, please call our law office at 614-389-9711. We would be happy to answer any of your questions and help you get started on creating a trust that is right for you and your family.