When you are creating an estate plan, there are numerous options that you have to convey your wishes. Generally, people will choose to use a will and trusts to get their assets distributed in accordance with their wishes. Understanding trusts can be complicated, but there are some basic points to consider.
What are the two main types of trusts?
The two main types of trusts are inter-vivos trusts and testamentary trusts. An inter-vivos trust is also known a living trust, which is established while you are still alive. There are several subtypes of living trusts. A testamentary trust is one that is established after you pass away. It is set up in your will.
What are the two main subtypes of living trusts?
A living trust can be established as either an irrevocable trust or a revocable trust. An irrevocable trust is one that can't be changed once you establish it. You can't take assets out of it because once an irrevocable trust is established, the assets belong to the trust. An irrevocable trust's appreciated assets are shielded from estate taxes. A revocable trust is one that you can change whenever you want. You keep control of all the assets in the trust.
Are there any other special trusts?
There are several other types of trusts, including qualified terminable interest property trusts, qualified personal residence trusts, irrevocable life insurance trusts, generation-skipping trusts and credit shelter trusts. Each of these trusts serves a special purpose, so make sure you speak to someone about them if you are interested.
Trusts are a very useful tool for making sure your assets are properly distributed when you pass away. Be sure you fully understand how a trust will affect your assets and your heirs.
Source: CNN: Ultimate guide to retirement, "What kinds of trusts are there?," accessed Aug. 20, 2015