If you are retiring or near retirement, it is good to think about what kind of estate planning trust types are out there. Even if you are not near that age yet, thinking about it earlier will only benefit you in the long run. While it certainly seems very confusing when thinking about all the different types of trusts for estate planning, it is actually quite simple and can be broken down into two major groups: revocable and irrevocable.
A revocable trust is a type of trust used in estate planning, meaning that it can be changed or modified before you passing. Irrevocable means that once the agreement has been signed, it may no longer be modified. Therefore, knowing whether the trust you want to enter into falls into one of these two types is the important first step. The next one is figuring out your end of life goals and your goals for your beneficiaries, which will dictate the types of trusts for your estate planning.
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A by-pass trust is a great way for those who feel that they might outlive their spouse and ensure that the assets are passed onto the surviving spouse. Whenever someone passes away, the assets are subject to federal taxes if they are in a single person’s name. By incorporating this type of trust in your estate planning, you can avoid paying taxes on both the principal and income earned from the assets until the remaining spouse’s passing when the trust is transferred to the beneficiaries.
Assigning wealth is an incredibly difficult task and can often involve a great deal of emotional ups and downs. While parents may wish to transfer their wealth to their children when they pass, they might not want to all the time for a variety of reasons. Issues with substance abuse, confinement, marital problems, or the kind of relationship you had with your child or children might be some factors that influence you to pass your inheritance to your grandchildren. Doing so is an incredibly personal choice, and no one should force you one way or another. Still, if you decide to do so, you may set up a trust that gives the grandchildren money while your children might only have access to the income from the trust.
There remains another option for ensuring your final wishes are met for those who do not want to pass assets onto family and friends. If you want to donate all or part of your assets to charity, setting up a charitable trust is the best option for you. Placing the assets into a charitable trust may dictate which charities receive what funds, and a trustee may be appointed to ensure these demands are carried out.
If your beneficiaries face a litany of claims from creditors or spousal claims such as alimony, then this type of trust for estate planning would be perfect for you. All of the trust assets are shielded from any claims from those seeking debts from the beneficiaries. Additionally, if the beneficiary becomes divorced, the trust cannot be touched in divorce proceedings either. A trustee is also appointed to invest and manage the assets. This may be done for the entirety of the beneficiary’s life or until a certain age.
Supplemental Needs Trust
For those with a sick or disabled relative or friend, this type of trust for estate planning is a great option. By placing assets into this trust, you can ensure that the care and medical expenses for this person are taken care of for the entirety of the person’s life. Even better is that the funds paid out from this trust are not considered income, meaning that the person would still be eligible for the government’s benefits, such as social security, Medicaid, and other programs if they qualify.
If you feel as though there would be conflicts among family members, you might consider setting up a blind trust. A blind trust essentially appoints a trustee who manages the money for the beneficiaries and has zero input into the assets or what assets are even in the trust. They simply receive money for what has been outlined for them in the trust you set up.
Not every type of trust for estate planning has to involve human beneficiaries. In fact, you may appoint someone to care for your pets after your passing as well! A pet trust simply works like many other types of trusts used in estate planning. You put assets into the trust, establish a beneficiary, and outline any rules or guidelines for the trustee to follow. Doing so will ensure that your pet’s needs will be taken care of for their entire life.
While there are certainly not all of the types of trusts for estate planning available to you, they represent a good cross-section of available options. As you can see, there are practically limitless options, and they are designed to accommodate every type of wish and lifestyle you may desire. However, because there are so many with different rules and regulations surrounding them, it is advisable to seek qualified counsel prior to entering any type of arrangement.
Luckily for you, planningcommunity.org is here to help! We offer educational workshops that detail trusts and more on a weekly basis. Our qualified hosts are estate planning experts from local communities. The workshops will help you can make the most informed decisions about making a trust.