Family * Travel * Food

Different Types of Trusts

Keeping finances in order is an essential part of life. When the time comes when an individual or family needs to think about planning their estate, setting up a trust account may come up. There are a variety of trusts one can sign up for, and there are four common types that most may consider. 

What Is a Trust?

The basic description of a trust is an arrangement is made to allow a third party, also known as the trustee, to hold onto certain assets as a favor to the beneficiary or beneficiaries. They are primarily used in estate planning to transfer the assets to the beneficiaries easily. A trust is similar to a will, and most of the time, the beneficiaries are a spouse, children, or other family members. Sometimes it is even a close friend or a charity depending on the situation. These beneficiaries will receive the assets to the trust based on how the trustee is directed to distribute them.

Living and Testamentary Trust

Every trust account must be selected and set up by the trustor. Some situations will call for an Advisor Directed Trust if the assets are considerable. But the two common trusts are the living and testamentary trusts.

The living trust can also be called an inter vivos trust and is created while the person is still alive. One of the most common purposes of this trust is so the trust's assets can be effortlessly transferred to the beneficiaries. It can accomplish this by avoiding probate, saving time and court fees, and reducing the estate taxes for the beneficiaries.

A testamentary trust is set up after death and is influenced by what is said in the last will and testament. The terms of this trust can be changed at any time up until death and can be a more straightforward process with more flexibility than a living trust. The main objective is to ensure that the beneficiaries can only acquire certain assets at a prearranged time.

Revocable and Irrevocable Trust

A revocable trust is also known as a revocable living trust, and it allows the trustor to keep control of their assets during their entire lifetime. They can change the trust or even dissolve it if they deem it necessary. These types of trusts offer flexibility because they can transfer their assets and switch their guidelines for handling said assets during their lives.

On the other side, an irrevocable trust cannot be changed or modified once established. Therefore, if a transfer of assets occurs to a trust, it can no longer be changed or undone. This gives the trustor less flexibility and asks why someone would choose this trust? The main reason someone may choose this trust is that they benefit from a safeguard. Their assets are safe and protected from claims of creditors or beneficiaries. It also can remove certain assets from the estate, making them exempt from estate and gift tax.

When planning an estate, a trust can significantly benefit the trustor. And depending on the assets, choosing the right trust is crucial.

Blogger Template Created For Mom Files All Rights Reserved