You’ve been looking into starting work on your estate plan, but you’re not entirely sure what you should include in it. One of the things you’ve seen mentioned before is a trust. You had been under the impression that all trusts were the same, but after looking at websites about them, you feel overwhelmed.
The reality is that there are many kinds of trusts that you might benefit from. The two main categories of trusts include revocable and irrevocable trusts. The names explain what they are fairly well. If you choose a revocable trust, you can revoke it at any time. If you choose an irrevocable trust, it is not revocable once you set it up.
A lot of people choose to use irrevocable trusts, because these trusts offer protections that a revocable trust may not. For example, you may have better tax protections with an irrevocable trust, because you actually reduce the value of your estate when you place assets into the trust. On the other hand, some people opt to use revocable trusts, because they like the idea of avoiding probate but still want to have the permission and ability to make changes to the trust when they feel like it.
If you have no heirs, should you set up a trust?
One question that often comes up is regarding an estate with no heirs. If you have no heirs and want to leave behind assets to a charity or other entity, you might want to set up a charitable trust. A charitable trust helps lower or avoid estate and gift taxes. You may also benefit from knowing where the assets will go, and the charity may recognize you for it while you’re still living.
What happens if you have an heir but think they’re going to go through your assets and spend them unwisely?
In that case, you might want to try an irrevocable trust with rules that you put into place. For example, you could say that your heir can have access to only a specific amount of money yearly or that they are allowed to take out the funds only when they reach a particular age. Setting up requirements allows you to control the assets you’ve left behind, even though you won’t be there to personally enforce those rules.
There’s a lot to think about if you want to consider adding a trust to your estate plan. Review what these trusts do, so you can talk about them with your attorney.