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A solid, comprehensive estate plan will help ensure that there will be a smooth transfer of assets to a person’s selected beneficiaries once he or she passes away and that everyone’s best interests are protected the whole way. Without proper planning, inheritances can be whittled away by taxes, excessive court costs, and irresponsible spending on the part of a beneficiary. Fortunately, an estate plan can guard against these things with the proper implementation of a trust.
A trust is an entity set up by the trust grantor, or settlor, and managed by a trustee for the benefit of the trust beneficiaries. The grantor transfer assets into the trust. The property held in a trust may include tangible property such as jewelry, cars, and more, but it can also include intangible assets such as securities. The assets held in the trust are referred to as the trust “principal” or “corpus.”
Are There Different Types of Trusts Used in Estate Planning?
There are a number of different trust types that can be used in estate planning. Broadly speaking, trusts are divided into two central categories: revocable and irrevocable. A revocable trust has a great deal of flexibility as it can be altered or revoked at any time during the grantor’s lifetime. An irrevocable trust, on the other hand, cannot be amended or revoked except under very limited circumstances.
More specifically speaking, there are a number of trusts that fall under these two broader subcategories. For instance, there is a living trust which is created during the grantor’s lifetime when the grantor transfers property into the trust. With a living trust, it is common practice for the grantor to also act as a trustee. Once the grantor passes away, a successor trustee takes over and the trust becomes irrevocable. A living trust offers several advantages, one main one being that the assets held in the trust will avoid delays and expenses associated with the probate process. This nearly eliminates any delays a beneficiary may normally experience in accessing an inheritance. The fact that the trust avoids probate also means that there is the benefit of privacy as the assets do not pass through the public transfer of probate.
A testamentary trust, another type of trust, is created specifically by a will upon the death of the grantor. This is a popular option for those wanting to leave money to charities. It can also be a great way to preserve assets if you have children from a previous marriage. Furthermore, a testamentary trust can be a good way of fostering a solid financial future for a surviving spouse by providing a steady income stream over the course of his or her lifetime in the form of trust distributions.
An irrevocable life insurance trust (ILIT) can also be a valuable trust to include in your estate plan. An ILIT is often used as a tax savings technique as the trust allows life insurance proceeds to be excluded from the estate of both the first spouse to pass away as well as that of the second spouse. The trust is funded by transferring a life insurance policy into the trust. The trust then becomes the owner and beneficiary of the policy. The grantor’s heirs, however, act as the beneficiary of the trust itself.
Estate Planning Attorneys
Do you want to learn more about how a trust can help you create a strong estate plan that protects future goals for you and your loved ones? At CDH Law, we are here to provide you with the answers you need to create an estate plan you can count on. Contact us today.