Establishing a trust can be a wise decision for anyone who wants to shield assets from probate or make it easier to transfer property. However, not all trusts are the same. There are specific benefits and limitations of every type of trust.
To protect your wishes and property, you should understand the various types of trusts and what they do.
Types of trusts
While there are dozens of types of trusts, the following are some of the more common trusts people utilize:
- Revocable trusts – A trust you set up and retain the right to control during your lifetime.
- Irrevocable trusts – A trust that completely transfers property ownership to the trust, removing it from your estate. You cannot change or revoke this type of trust.
- Special needs trusts – A trust designed to pass your property on to a beneficiary with special needs. Passing property this way will not compromise his or her eligibility for valuable government benefits.
- Charitable trusts – A trust that allows you to pass property to a charitable entity, reducing gift or estate taxes.
- Medicaid trusts – An irrevocable trust designed to shelter assets without compromising your eligibility for long-term care Medicaid benefits.
- Testamentary trusts – You establish this type of irrevocable trust in a will. Upon your passing, the property in the trust passes on to beneficiaries at a predetermined time.
These are just some of the more common trusts people create to accomplish various goals. Again, there are many others that may work best for you.
Which trust is right for me?
Setting up a trust takes work, deliberation, and often, guidance from a legal or financial professional. Thus, before making any decisions, you should consider what you want a trust to do. As such, be ready to answer the following questions:
- Are there specific people you want to protect with a trust?
- How much control do you want to have over the trust management?
- What type of property will you put into the trust?
- What are your goals – to protect yourself from creditors, avoid probate, maintain public benefits for your beneficiary, efficiently transfer property, minimize taxes or something else?
- Are you hoping to see the benefits of a trust during your lifetime?
Your answers to these questions can provide critical guidance in forming the right trust for you.