What are the different types of trusts?
A trust is a right to property that is held by one party for the benefit of another. A trustee is the person or organization that owns a trust and a beneficiary is the party that benefits from the trust.
Trusts may be created while a person is alive or formed after death. The purpose of a trust is to preserve assets and ensure that they get passed on to the person of your choosing. Once the trust has been created, it will be dispersed according to the rules and regulations of the trust contract.
There are several types of trusts you can choose from, the most common are revocable and irrevocable trusts.
A revocable trust is often called a living trust, it is created while the trustee is living. The trustee can modify the trust at any point. A revocable trust will not be subject to probate. Upon the death of the trustee, a revocable trust often evolves into an irrevocable trust. The beneficiary cannot make modifications and must follow the guidelines of the trust contract.
An irrevocable trust cannot be modified after it has been created—even by the trustee. The benefit of an irrevocable trust is that it keeps the assets locked down. Not even creditors or Medicaid can access the trust.
Other trust options
There are many other trust options available, including:
- Asset protection trust: may make assets inaccessible to creditors
- Charitable trust:names a charity as the beneficiary
- Spendthrift trust: does not allow the beneficiary to sell or relinquish the trust
- Tax by-pass trust: limits the amount of tax paid to the government when transferring assets to a spouse
- Totten trust: used to ensure a spouse gets assets upon death, avoids the risk of joint ownership
- Special needs trust: gives beneficiary extra benefits in addition to the government benefits they already receive
Depending on your assets you may want one or more trusts. A revocable trust may be a wise option if you are under the age of 40 and plan to make changes to your trust throughout your life. If you are 75 years old, you may want to create an irrevocable trust if you have finalized decisions regarding assets and property.
Regardless of the type of trust you create, your assets may be protected from creditors and you will be able to ensure the person of your choosing receives the benefits. Contact an estate planning attorney if you have questions regarding which trust is best for you.