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Which trust is best for my legacy? Three options

On Behalf of | Feb 22, 2024 | Estate Planning |

Estate planning is a critical process for individuals looking to manage their assets and provide for their loved ones after they pass. One of the fundamental tools in estate planning is the creation of a trust. Trusts can offer control, privacy, and sometimes tax benefits, depending on the type chosen. Those considering their legacy and estate plan may find it beneficial to understand the most common types of trusts used in estate planning.

#1: The revocable living trust

A revocable living trust is a popular choice for many as it provides flexibility and control. The person who creates the trust, known as the settlor or grantor, can alter or revoke the trust during their lifetime.

This type of trust allows the settlor to make changes or dissolve the trust as needed. It can also help to avoid probate as the assets in the trust generally bypass the probate process. This can help facilitate a smoother transfer to beneficiaries.

Those putting together an estate plan often prefer the revocable living trust for its adaptability and the ease it brings to the estate settlement process.

#2: The irrevocable trust

Unlike a revocable trust, an irrevocable trust is fixed; once it is established, the creator cannot easily change or terminate it. Benefits that come with this rigidity can include:

  • Potential tax advantages: A settlor who transfers assets into the trust may reduce their estate tax burden.
  • Asset protection: This type of trust generally shields assets from creditors and legal judgments against the grantor.

Despite its inflexibility, an irrevocable trust offers significant protection and tax benefits, which can be advantageous for estate planning purposes.

#3: The testamentary trust

A settlor can create a testamentary trust, also known as a will trust, as part of a will. This type of trust comes into effect after the grantor’s death. It allows the grantor to dictate terms for asset distribution after death and can safeguard assets for minors or beneficiaries who may not be financially responsible.

The testamentary trust serves as a tool for those who wish to maintain control over their estate’s distribution after they have passed away.

Choosing the right trust depends on individual circumstances, goals, and the amount of control you wish to retain over the assets. An estate planning attorney can review your goals and help determine which trust aligns best with your estate planning objectives.