Trusts are a way to pass assets during life or upon death and can be an important component of an estate plan. There are different types of trusts that can achieve different purposes for estate planners which is why they should be familiar with the different types of trusts when setting up an estate plan. Trusts can be revocable or irrevocable and fall into a variety of different specific types.
Asset protection trust
Asset protection trusts are commonly used to protect assets from creditors. They are usually irrevocable for a period of time so that the trust maker does not have access to the assets placed in trust for a period of time but they may be protected from creditor attack.
Charitable trusts are established to benefit a charity or the public generally. Charitable trusts may help to minimize the amount of estate or gift tax the estate is required to play. A charitable trust can also be used as a financial planning tool.
Spendthrift trusts prohibit the beneficiary from selling or designating any interest in the trust property and protects the trust property from creditors until it is distributed. This is commonly used for younger trust beneficiaries such as the estate planner’s children.
Special needs trust
Special needs trusts are set up for an individual who receives government benefits so that receipt of the trust funds will not disqualify the beneficiary from receiving the government benefits. This can be set up as part of an estate plan for a disabled loved one, as an example.
Totten trusts are most easily understood as bank accounts with beneficiaries. They are revocable and are not considered completed until the trust maker dies.
Estate planning is an important process which is why it is helpful to understand the big picture. Estate plans have tax and other implications that trusts may be able to help with, including helping to avoid probate in some circumstances. For that reason, estate planners should understand the different types of trusts and what they can do for their estate plan.