A trust is a common way of transferring wealth from one generation to another as a part of an estate plan. Depending on your estate, having a trust may have several advantages. Below, we discuss the different types of trusts so you can evaluate which one should be a part of your estate plan.
What is a trust?
A trust is a fiduciary relationship between a trustor (the person creating the trust), a trustee (the person managing it), and beneficiaries (those receiving the assets of the estate). A trust is a way of transferring the property and assets of an estate without going through the probate process after the trustor passes away. Trusts cannot be contested in court, which speeds up the process of dividing assets. Trusts go into effect once created, even if the trustor is still living. Trusts give trustors and trustees more control of their assets and estate division. However, they are generally more expensive to establish and must be regularly managed. Every trust must include a trustor, a trustee, a successor trustee, and beneficiaries. There are many different types of trusts to serve the needs of your estate. Below, we discuss the most common ones.
Living trusts are established when the trustor is still living and managed during their lifetime. They can be changed and altered after their creation. While the trustor is still living, the property and assets within the trust are owned by them. A living trust becomes “operational” after the trustor’s passing. A living trust may be revocable or irrevocable.
Revocable trusts are a type of living trust with the purpose of avoiding probate. Once the trust is set up, no lawyer or court fees will need to be paid. Once the trustor dies, the property in a revocable trust is immediately transferred to the named beneficiaries.
Irrevocable trusts are often established for tax reasons. These types of trusts cannot be altered or revised. The trustor loses control of the assets in this trust when creating it. These types of trusts help with planning for Medicaid, gifts, and tax from life insurance payouts.
Testamentary trusts are trusts that are established from instructions in someone’s will. This type of trust allows a trustee to distribute estate funds to beneficiaries after the trustor passes away. The will’s executor is in charge of this type of trust. These trusts reduce estate tax liabilities but still need to go through probate. Another benefit of these trusts is that you can name minors as beneficiaries and establish milestones or timeframes that will give them access to the assets in the trust, such as when they turn 18 or graduate college.
Charitable trusts are trusts established to gift funds or assets to charity after the trustor passes away. Charitable trusts reduce or avoid the estate tax liability of the gift.
Winter Park estate attorney: Boutty Law Firm
An experienced estate planning attorney at the Boutty Law Firm will help you determine which type of trust is best for your particular estate. We will also walk you through other estate planning options based on your needs. Call us at 407-622-1395 to schedule a consultation.