What Are Some Of The Most Common Types Of Trusts And Their Purposes?
The most common trust I create is called the Revocable Living Trust. It is primarily a trust to help avoid probate. Since it is revocable, it’s very flexible. It can be changed, and when you put your assets into a revocable trust, you can still use them in the same way as if they were not in a trust. For example, you have an account in the trust, and you can manage the money, change beneficiaries, and amend the document at will, which can be very simple. If you have a revocable trust, then you can change the rules without having to redo everything. I would say 95% of the trusts I create are Revocable Living Trusts.
There are also many types of Irrevocable Trusts. These trusts do not have the flexibility of a Revocable Living Trust. What you give up in flexibility you gain in the ability to protect assets, businesses and people. Many Irrevocable Trusts can protect you and your loved ones from taxes. There are trusts that can protect your business and your family from business debt. There are trusts that benefit charities.
I enjoy creating Special Needs Trusts, which are a specific form of Irrevocable Trust that work for disabled individuals who need to have someone else control their assets. In many cases these Trusts allow a disabled person to receive and use a gift of money from a loved one, while protecting that disabled person’s valuable government disability benefits.
What Protections And Solutions Can A Revocable Living Trust Provide During My Lifetime As Well As After Death?
During your lifetime, a revocable trust can appoint a person to take care of you and your assets if you become incapacitated. It means that someone you trust is in charge of the minutia of daily living – paying bills, answering mail, investing, taking care of property and even running a business. In other words you can concentrate on the task of recovering knowing that everything is not falling apart around you.
Can I Or Should I Have More Than One Type Of Trusts?
You can have more than one type of trust and in many cases you will grow into more and different trusts as your life passes through different stages.
Often what happens is you’ll start with a Revocable Living Trust, and that trust will create more trusts when you pass away. For example, you may have a Revocable Living Trust and three children, two of them adults. You might want to create a different trust for each of your children.
The first trust you create will give your eldest child’s share to them in cash. The second trust might say the share for the middle child only goes to the child after their 25th birthday, or it may say that your child can be co-Trustee on the trust at a certain age, which gives them an ability to exercise some control over their assets. The third, for the child who is not adult, can be set up to protect them while they are a minor.
Suppose you have a particularly vulnerable child, whether they have special needs or have issues that may impair their decision-making ability, like an addiction to drugs or alcohol. In that case, you can have a trust that protects them from predatory creditors, and you can have a trust that can keep the money so that they can have savings in addition to a government benefit they received.
Your life may also bring financial reasons for additional trusts. It may be necessary if you have many assets, businesses, or are involved in a lot of LLCs. You may have an estate that is large enough to be taxed under the federal estate tax. Or you can have a small business that you want protect by using a combination of insurance and a trust. These are just a few of the types of trust that may become a valuable part of your estate plan.
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