Trusts are an essential part of estate planning used to protect your plans for your assets after you die. They allow a trustee to hold and distribute your property for the benefit of another person.
Consider the four main categories and some of the types of trusts commonly used in estate planning.
As with any trust, you must name a trustee to control the assets. With a living trust, you name a successor trustee who only takes over after you pass away. During your lifetime, you retain control of the trust.
A testamentary trust is part of a last will and testament. You leave instructions for an executor, telling them how you want the trustee to manage your assets and distribute them to your beneficiaries. The trust goes into effect after your death.
A revocable trust allows you to outline your assets and how you would like to distribute them. With this type of trust, you have all the standard benefits, such as protecting your assets from probate, and you can cancel it at any time. You can also name the beneficiary as the trust grantor.
An irrevocable trust is the best option for asset protection. It allows you to protect yourself and your loved ones from potential legal action against your estate. Additionally, you avoid significant estate taxes that could substantially reduce the size of your estate for beneficiaries.
Most estate plans have a combination of different types of documents, including various trusts and a will.