A trust can be a useful estate planning tool and because there are different types of trusts, it is important for estate planners to understand what those different types are and what they can do for them as part of their estate plan. The type of trust that is best for the estate planner depends on their needs and goals for the trust instrument.
There are two broad categories of trusts, including irrevocable and revocable trusts, with different purposes and uses for each. In addition, there are different types of trusts that fall within the two different umbrellas of trust instruments.
Revocable trusts are created during the estate planner’s lifetime and can be altered, changed, modified or revoked entirely. As always, the trust property must be moved into the trust for the trust to be validly created but the estate planner can also move trust property out of a revocable trust if they desire to do so during their lifetime. A revocable trust can help an estate planner avoid the costly, and lengthy, probate process in some circumstances. A revocable trust typically becomes an irrevocable trust following the estate planner’s death.
Revocable trusts, on the other hand, cannot be altered, changed, modified or revoked once they have been created. Once property has been transferred into the trust, it cannot be removed even by the trust maker. Irrevocable trusts provide less flexibility than a revocable trust. Irrevocable trusts can, however, provide tax benefits and may provide some benefits related to creditors.
Different types of trusts can help estate planners plan for the needs of loved ones in different situations. Different types of trusts can include charitable trusts, special needs trusts, Totten trusts and spendthrift trusts which are all designed to achieve different purposes for the estate planner.
Trusts are an important part of the estate planning process for estate planners to understand. They should understand how they work and which trust option might be best for them as they develop their estate plan.