Despite being the most commonly used estate planning tool, wills have several drawbacks.
Trusts, on the other hand, offer many benefits, such as allowing your loved ones to avoid probate and reducing liability when it comes to estate taxes. Trusts are highly customizable and give you more control over how your taxable estate is distributed.
Certain trusts may be better suited for you than others, depending on your unique concerns and your desired beneficiaries. Worried about your beneficiaries squandering their inheritance? There’s a trust for that. Are you making provisions for a loved one with special needs? There’s a trust for that, too.
With so many types of trusts, you may be unsure which one is right for you. You may wish to schedule a consultation with our knowledgeable estate planning attorney for personalized recommendations and guidance.
In the meantime, there are five types of trusts you should consider adding to your estate plan:
Are you concerned about a beneficiary squandering their inheritance? Maybe they’re prone to taking on debt or have shown difficulty with personal finance, and there’s a chance that your legacy will end up in the hands of creditors. With a spendthrift trust, you are better able to protect assets while still giving to the surviving spouse or family member you love.
A spendthrift trust limits a beneficiary’s access to assets and gives you more control over when and how the funds are released. This type of trust is best suited for leaving an inheritance to someone with poor spending habits, a lot of debt, or a history of substance abuse.
With this type of trust, the beneficiary won’t be able to sell the assets, and they’ll receive funds incrementally instead of all at once. Because the assets belong to the trust (not the beneficiary), they’re protected from banks, collection agencies, and other creditors.
We’ve all heard of the proverbial “trust-fund baby” who doesn’t need to work because their inheritance pays all the bills. An incentive trust discourages this behavior by specifying criteria the beneficiary must meet before releasing funds.
For example, you may wish to specify that a beneficiary must graduate from college before receiving the funds. They’ll be extra motivated with their studies (and far less likely to drop out) knowing there’s a reward at the end.
Like other types of trusts, an incentive trust bypasses the probate process and protects the funds from creditors.
Do you want to leave a legacy for a cause or organization near and dear to your heart? A charitable trust allows philanthropists to transfer assets to their favorite organizations while reducing their estate’s tax liability.
There are two kinds of charitable trusts: charitable remainder trust and charitable lead trust. A charitable remainder annuity trust earmarks remaining assets or income for a charity of your choice, whereas the charitable lead trust designates funds to your chosen charity first and gives any remainder to your beneficiaries.
Charitable trusts are irrevocable trusts, so once yours is operational, you won’t be able to regain ownership of assets. A charitable trust is a big decision you should discuss with a lawyer.
Schedule a consultation with our knowledgeable estate planning attorney when you’re ready.
If you’d prefer that your assets pass to your grandchildren, a generation-skipping trust should be a part of your estate plan. This trust can be used as an effective wealth-preservation tool and allows you to bypass the estate tax and probate process.
Although grandchildren are the most common beneficiaries of generation-skipping trusts, you can also choose generation-skipping trusts to transfer assets to a nephew or mentee. The beneficiary can be anyone at least 37.5 years younger than you, provided they aren’t a spouse or ex-spouse.
If you’re leaving a legacy for a loved one with special needs, you’ll want to consider this type of trust. While done with the best intentions, enriching your loved one could ultimately be detrimental. To qualify for government benefits such as Supplemental Security Income (SSI), disabled persons must have a net worth of $2,000 or less. This type of trust preserves their eligibility for the government benefits they deserve.
Special needs planning also entails developing a comprehensive care plan for your loved one. Our experienced and compassionate special needs planning attorney can walk you through the process.
In addition to the five types of trusts outlined above, you might also want to consider one of the following:
Estate plans are as unique as the people who create them. When you work with an estate planning attorney, you’ll get personalized advice and guidance.
If you’re unsure which types of trusts best suit you, schedule a consultation and discuss your concerns with us. After learning more about your unique circumstances, we can create a plan that fits the bill and provides peace of mind.