Trusts can help in protecting your assets. You should talk to family trust lawyers to determine if trusts are appropriate according to your financial status. Moreover, there are different types of trusts.
So, it is essential to find out which one will be the most suitable for you. Check out this article and learn about a few types of trusts.
1. Testamentary Trusts
Testamentary trusts are very common and come into effect after the death of the grantor. You need to maintain testamentary trust during your lifetime. You need to change your will to modify your testamentary trust. This trust prevents your children from getting a huge inheritance when they turn 18. This is good because kids do not usually develop financial maturity at this age.
If you have more than one child, testamentary trusts are perfect for you. You can fulfill the unique needs of all your children and allocate the assets accordingly. A testamentary trust can provide for the special needs of a disabled child without making them unworthy of government benefits.
2. Revocable Trusts
Revocable trusts allow your estate to avoid the probate process. The probate process can often be lengthy and costly. It can keep your money tied up in the courts for months. The assets in a revocable trust can be accessed immediately to pay for essential expenses.
It can even help in keeping the value of your assets private. Revocable trusts are often used by international families. The trustees of a revocable trust can be appointed without seeking court approval.
3. Irrevocable Trusts
An irrevocable trust lawyer can help you with tax planning related to your estate. This type of trust is often called irrevocable life insurance trust. This is because a life insurance policy can be transferred into the name of the trust.
However, you cannot break an irrevocable trust easily. You will not be able to take out the money without some difficulty. Life insurances can be set as irrevocable trusts because they are not required during a lifetime.
The assets in an irrevocable trust can be protected from the creditors of the person who created the trust and future beneficiaries.
4. Asset Protection Trust
This type of trust protects an individual’s assets from the claims of the creditors in the future. The main reason behind opting for this trust is insulating the assets from the creditor’s threat. These typically structured trusts are irrevocable in nature for years to ensure that the trustmaker doesn’t become the current beneficiary.
5. Charitable Trust
Trusts that ensure the benefit of a specific charity or public, in general, are termed charitable trusts. These types of trusts are mostly done within the part of the estate planning to reduce or avoid the estate and gift tax imposition.
6. Constructive Trust
This means an implied trust. This type of trust gets confirmed by a court after determining certain situations and facts. The court might proceed with the decision even if there was no official or formal declaration of the trust. The court would also decide that the property owner intended the property to be used for a specific purpose or to a particular individual.
7. Special Needs Trust
These types of trusts are done for individuals who receive government perks while ensuring not to disqualify the beneficiary from those government perks. It is permitted under the Social Security rules and considered legal only if the disabled beneficiary is unable to control the amount or cannot revoke the trust.
With the help of trust, the beneficiary obtains luxuries and additional benefits without disrupting their government perks. When the beneficiary may become ineligible for government benefits due to the special need trust, it terminates the trust with provisions.
8. Spendthrift Trust
A spendthrift trust is established for any beneficiary restricted to selling or pledging the trusts’ interests. It stays protected from the beneficiary’s creditors until the trust property gets distributed to the beneficiaries.
9. Tax By-Pass Trust
This type of trust is established to enable one spouse to leave wealth for the other while reducing the federal estate tax that is payable upon the second spouse’s death. Even if the assets can pass to a spouse tax-free, if the surviving spouse passes away too, the leftover assets over the exempt limit will become taxable for the couple’s children.
10. Totten Trust
A Totten trust is established at the time of a grantor’s lifetime by depositing money in a bank account in their name as the trustee for another. This is considered a revocable trust where the gift is not complete until the grantor dies or any unequivocal act calling for the gift. It also helps to avoid probate.
Trusts are one of the most flexible elements of estate planning. You should consult a reliable trust planning attorney and follow their advice. They will be able to guide you to the most appropriate trust according to your financial condition.