When it comes to estate planning, many people have a vested interest in making sure the maximum amount of their estate goes to their intended beneficiaries. Some also have specific intentions for how that money should be used or under what circumstances it should be distributed. Trusts are a common way California estate planners seek to write more specific criteria into their estate plan and/or limit the tax burden on their next of kin. Here are some of the types of trusts that are common in estate planning:
- Revocable/irrevocable: The designation of revocable or irrevocable signifies whether the grantor can retain the property later on if they choose. In a revocable trust, the property can be reclaimed by the grantor at any point during his or her lifetime. Irrevocable trusts, by contrast, designate property to another in a way that cannot be reclaimed.
- Testamentary/living: This determines when and how the trust goes into effect. In a testamentary trust, the trust becomes effective as soon as the grantor dies. Once the grantor dies, a testamentary trust is irrevocable. A living trust, by contrast, is in play during the person’s lifetime and can be used to help with incapacity planning or to simplify probate.
- Grantor/non-grantor: A trust’s status as grantor or non-grantor has to do primarily with taxation. With a grant or arrangement, the grantor typically pays all taxes. Non-grantor arrangements, involve the trust itself being taxed. The exception to this is non-grantor trusts that are distributed in the same year they are contributed to.
Trust can be a very handy part of a comprehensive estate plan, providing grantors with more control over how their assets are distributed and taxed. Trust do take some work and expense to set up initially. Grantors should carefully review all options to ensure the trusts they utilize meet their needs. To do this, it is advisable to work with an experienced estate planning lawyer.