One thing you have to decide when you are creating an estate plan is whether you need to set up trusts. If you decide that your heirs can benefit from having things placed in trusts so they are transferred easier when you pass away, you’ll have to determine what types of trusts you need.
There are two primary categories of trusts that people use – revocable and irrevocable. The main difference between these two is that revocable trusts can be changed or voided. Irrevocable trusts can’t. If you are trying to protect assets from creditors, you will need to use an irrevocable trust.
On top of trust categories, there are also different types of trusts, each of which serves a specific purpose. You have to decide what the trust should do so you can find the one that meets your needs.
- Charitable trust: Transfers assets to a charity you choose while you are living. These can come with benefits that you might appreciate prior to your passing.
- Life insurance trust: Transfers the proceeds from your life insurance policy to the person named in the trust. You can use this to distribute one policy to several individuals based on the terms of the trust.
- Special needs trust: Transfers assets to someone who needs benefits from asset-based assistance programs. Assets held in the trust are used as supplemental support for the person, but they aren’t ever turned over fully to the person. Instead, a trustee handles the distribution in ways that meet the conditions of the trust.
- Totten trust: Transfers assets, particularly bank accounts and other financial accounts, to a person. This is considered a safer method than trying to use joint ownership to hand these assets off.
- Spendthrift trust: Provides protection from creditors of beneficiaries. The named beneficiary can’t give away or sell their interests in this type of trust.
As you can see, you have options. Making sure you choose the trust that will benefit your family members and other heirs is necessary.