A trust can be an effective tool for estate planning. When you are making arrangements for the distribution of your assets after your death, you may wish to consider using a trust instead of or in addition to a will to have better control over your estate.
However, there are many different types of trusts available to you. Since they become active when you transfer assets into them, trusts can serve a variety of purposes both before and after the death of the grantor depending on their structure.
Revocable trusts allow you as the grantor to alter, amend, or terminate them at will. You can also serve as the trustee while you are able, and appoint your own successor trustee. Assets in this trust pass without probate but contribute to your taxable estate.
An irrevocable trust is one that you do not control, cannot act as trustee and cannot alter; you lose ownership rights to the assets when you transfer them into the trust. It can remove income for tax purposes during your lifetime and protect assets from creditors upon your death.
A charitable trust is an irrevocable trust that benefits a charity. They are subject to complex tax laws but can provide both tax benefits and income for the grantor when structured properly.
Special needs trusts
Grantors concerned about the future of individuals with disabilities can use a special needs trust to provide financial support, without jeopardizing eligibility for federal and state public assistance programs. Because these trusts must meet complex legal requirements but can provide peace of mind.
Choosing the correct trust for your goals can help make your estate planning more effective.