Trusts are a valuable estate planning tool that may sometimes be less understood than other estate planning tools. As a consequence, estate planners should understand the different types of trusts and how they can help them.
Trusts manage the property of the estate planner by transferring the management of the property, and the benefit of the property, to other parties including a trustee and beneficiaries. A trust can be used alone or to supplement a will. A trust can be used to manage property during life or can be used as an estate planning tool when the estate planner passes.
Trusts fall into two broad categories including living trusts and testamentary trusts. Testamentary trusts become effective when the estate planner dies. Living trusts can be revocable during the estate planner’s lifetime or irrevocable. If the trust is irrevocable, the estate planner will be unable to make changes to it. Within the two categories of trusts are different types of trusts to help estate planners in different situations such as a special needs trust, spendthrift trust or charitable trust. It is important for trust property to be transferred into the trust so that the trust is funded and considered valid.
There are different requirements for the estate planner to meet to ensure their trust accomplishes the outcomes they have planned for it. During the process of estate planning, estate planners should ensure they fully understand the purposes of all the estate planning tools, including trusts, so they can develop an estate plan that best meets their needs.