TYPES OF TRUSTS
Revocable Living Trusts
A Revocable Living Trust (RLT) is not only for families with millions whose kids go to private school. A trust not only provides the person giving the money with a more control, but it offers greater asset protection for the beneficiaries (children/grandchildren) also. Since an RLT owns the assets, once you pass the trust keeps the assets protected from creditors and potential divorce or separation proceedings of your beneficiaries in the future. You get to set the terms of the trust and determine at what ages, life events, or other intervals assets are to be dispersed. You also get to choose how much they get at every interval, either a dollar amount or a percentage of the available assets. You can also impose additional restrictions, such as attending an institution of higher education or securing employment before your kids would be eligible for a distribution.
A Testamentary Trust is a type of custodial account, which is the type of account created if you die with only a will or even with a will that has a Testamentary Trust. The purpose of this account is to have someone (of your choosing) to hold the money for the child(ren) while under a stated age. With a custodial account, however, the beneficiaries (kids) own the account and have full access to all the assets at stated ages. When the child named in the custodial account becomes an adult (at whatever age you choose), he or she is free to spend that money anyway he or she sees fit. That means they can use it to pay for college, put a down payment on a house, or blow it all on a fancy new car.
An Irrevocable Trust involves three individuals: the grantor, a trustee, and a beneficiary. The grantor creates the trust and places assets into it. Upon the grantor’s death, the trustee is in charge of administering the trust. This means that he or she is responsible for distributing the assets in the trust according to the grantor’s wishes. The trustee has an important job, as he or she must protect the assets. The beneficiary is the person who receives benefit of the assets.
Assets placed into the trusts are considered gifts and cannot be removed at a later date. Irrevocable trusts can be great tools for estate planning because an irrevocable trust removes assets from a person’s estate – while the person is still alive. Why would anyone want to do that? Because by doing so, it will remove the assets from getting taken in a lawsuit, being taken by other creditors, or adversely effecting one’s ability to qualify for government assistance. However, it can also create more of a problem, if they are not property explained and assets that you need regular access to are placed in this type of trust.
Other Types of Trusts
Some of the other types of trusts you may want to consider for your estate plan include, but are not limited to:
Special Needs Trust