Planning for the future is an important part of being an adult. However, it is not always easy, especially when you are planning for what happens after your death. Certain estate planning tools may appear complicated too, such as trusts. Having a better understanding of trusts may help you gain the confidence to utilize these helpful documents.
There are several different types of trusts. However, trusts generally all function in the same way in that the trust itself, and not the person who created it, technically owns the assets within it. The person who created the trust — the grantor — will have also included rules and instructions as to how the trustee should use or manage the trust’s assets, often for the benefit of a beneficiary.
What are revocable trusts?
Revocable trusts are fairly self-explanatory in that you can revoke them during your lifetime. You can also change or modify the trust as you see fit. You might also hear these types of trusts referred to as living trusts.
Many people use revocable trusts to avoid probate, which can be a costly and time-consuming process. Revocable trusts are not a good option for someone who is interested in an asset protection technique, though. This is because creditors can still access property that placed within a revocable trust.
Do irrevocable trusts protect assets?
If you are interested in potentially protecting your assets from creditors, you might be more interested in an irrevocable trust. One cannot alter an irrevocable trust after its creation, and no one — not even the trustee — can remove any property from the trust. If you are worried about the finality of irrevocable trusts, you can still create a revocable trust that evolves into an irrevocable trust upon your death.
People often create irrevocable trusts for survivorship life insurance policies. Upon the policy holder’s death, the funds would pay out to the trust. From there, the grantor can pay out to any beneficiaries according to the trust’s instructions.
Are there other trusts?
There are many benefits to specialized trusts created for specific needs. For example, a charitable trust is an ideal option if you are interested in continuing your charitable donations after your death. Other specialized trusts include:
- Special needs trusts
- Constructive trusts
- Spendthrift trusts
There is no such thing as a one-size-fits-all approach to estate planning. You cannot necessarily rely on what worked for your friends or loved ones in Texas when creating your own trusts, especially if you have a unique or challenging financial situation. Instead, you should be sure to carefully consider your own needs when creating your own estate plan.
