What are the different types of trusts?

On Behalf of | Feb 10, 2023 | Estate Planning |

Trusts can meet the financial needs of a family making estate plans. Different types of trusts exist that can offer tax advantages and eliminate the need for probate.

When a family understands their options, they can make a beneficial decision.

What does a trust do?

Trusts are legal documents that specify how a person wants to transfer assets and properties. Trusts can keep the settling of an estate out of probate, which can preserve a family’s privacy.

Trusts can also eliminate disputes about assets and protect those items from creditors and high tax rates. Individuals can also ensure that the appropriate family members become beneficiaries and receive the desired amount.

What are the four most common types of trusts?

Trusts come in four main categories:

  1. A testamentary trust fulfills the specifications in a person’s last will and testament. A person can adjust the terms up until death by amending the will, although issues of competency or coercion could raise later challenges.
  2. A living trust is one a person creates while alive to transfer assets to beneficiaries. This method can efficiently transfer assets, reduce taxes and circumvent probate.
  3. Irrevocable trusts do not permit anyone to alter the trust after its creation. People often use this financial vehicle to guard an estate against a significant tax burden.
  4. Revocable trusts allow the grantor to alter the terms while still alive. People use these trusts for issues such as business succession, blended families and protection of other government benefits.

These trusts break down into other subcategories, such as charitable remainder trusts, Totten trusts, grantor retained annuity trusts and many others.

Trusts have numerous features that can have many advantages when a family employs them correctly. A deeper consideration of the subject is often crucial to any estate plan.