Let’s talk about estate planning for a minute and how important and helpful a trust can be. Most individuals do not like to talk about what might happen when they pass away, but if you plan ahead it can create an easier process for your children or spouse. Having a will or trust in place can prevent your assets from going to probate and seamlessly transferring to your heirs. A trust is simply an arrangement between a trustor and trustee, where the trustee will disperse the trustor’s assets to the identified beneficiary. There are some confusing words in that last sentence so here are some definitions:
- Trustee: a person who holds and manages the title to a property for the benefit of another
- Trustor: a person who creates a trust
- Beneficiary: a person, group or organization that is the recipient of funds or property under a will, trust, or insurance policy.
Now that we have a firm grasp of what a trust is we can dive deeper into the different types of trusts.
Living Trust
A living trust is created by the trustor during their lifetime. The benefit to a living trust is that the trustor is able to have the asset while they are alive, but the transferring of the asset after death to a beneficiary is easy. This type of trust typically avoids probate court, if the trust is funded.
Special Needs Trust
A special needs trust is specifically created to financially help those with a special needs dependent (child, sibling, or parent) while not disqualifying them for government benefits. The trust money assists with the day-to-day expenses or medical bills while allowing government benefits to kick in.
Trust for Children
A trust for children names a trustee that would take care of your child’s finances, should you and your spouse both die while the child is young. The trustee would control the assets you left your child until they become of a specific age (that you have pre-determined) at which point they would take over control.
Charitable Trusts
A charitable trust is great if you wish to leave a legacy as it names a nonprofit organization as the beneficiary. When the trustor passes, the trust is distributed to the organization without any or limited estate taxes. Charitable trusts can be specified as to what assets go to a charity and the remaining assets and property given to other beneficiaries, such as children or other family members.
Trusts Under Will
Trust under will is also known as a testamentary trust and is similar to a living will except that the trust only becomes effective after the death of the trustor. This means the trustor can make changes up until he or she dies and the trust is not actually created until the will goes through probate. Otherwise, a testamentary trust is similar in the way that the trustor can specify to whom and how their assets will be dispursed.
Irrevocable Life Insurance Trusts (ILIT)
Irrevocable Life Insurance Trust is designed to manage a life insurance policy or policies while the individual that is insured is still alive. It also helps in distributing the proceeds after the insured individual’s death. ILIT can be either a single individual or a second to die life insurance, where the insurance covers two individuals and nothing is paid until the second individual’s death.
These are just a few different types of trusts that might be beneficial to incorporate into your estate planning. If you have any questions about them or want to learn more, don’t be afraid to reach out at any point or head over to our website!
*NOT a Deposit – NOT insured by FDIC or any other agency – NOT GUARANTEED by the bank – May lose value