When creating your estate plan, there are a variety of different methods of asset protection and preservation to choose from. There are multiple types of trusts that you can use depending on the unique needs of your family. While there are options available, this variety can seem overwhelming if you are new to estate and future planning. Your lawyer can assist you through the decision-making process, and help to evaluate your options alongside you so that you can choose in confidence. In this post, we explore the four main types of trusts and weigh the differences and similarities of each. We also cover how your lawyer can be an asset to you throughout the evaluation process.
A trust can have different provisions for individuals depending on the type of trust that is being used. The main purpose of a trust is to allow individuals to have additional options for financial planning that facilitate the effective handoff of assets, cash, or other items to someone else in the event of someone’s death. These plans are vital to have in place and can help streamline the family’s process while dealing with the tragedy when the time comes. These trusts offer different options for recourse throughout the court system that ensure that your interests are protected, even after death. Throughout the process, your attorney can help you to effectively evaluate which option best suits your situation and navigate you through the process of making it legally binding.
There are four different types of trusts that people commonly use. There are always exceptions and other smaller types of trusts that you may choose to explore depending on your needs. We’ve outlined the benefits and differences of each below:
1. Living Trust
A living trust is one of the most commonly used trusts, due to its ability to protect and maintain assets. This trust is considered its own separate entity and can help significantly simplify the process that ensues after a person’s death. Often, people appreciate the control that they are able to maintain with this type of trust and the fact that the trust does not tie up your assets in the long term. You are still free to use whatever assets you put into the trust, and virtually anything can be protected by this trust. You can also enjoy less taxation and will not have to worry about additional taxes being added in the event of your death.
2. Revocable Trust
Revocable trusts are often governed by the same rules as living trusts and offer the same amount of freedom and protection in use. An added benefit to either a living or revocable trust is that you and your family can completely avoid probate so long as the living trust arrangement is considered legally approved and binding. Your attorney can help to ensure that your trust is properly executed to avoid any potential problems down the line. Revocable trusts offer grantors additional measures of control by setting predetermined conditions or standards that must be met, or else the trust will not be released. This type of trust is ideal if you have a trustee in mind who can assist in the execution and management of the living trust in the event of your death.
3. Irrevocable Life Insurance Trusts
These types of trusts are also known as ILITS and can be beneficial to arrange throughout the course of your estate planning. This type of trust offers a more permanent solution, and anything added to this type of trust is relinquished to the trustee. This means that even though the trust is in the grantor’s name, the trustee retains control of the assets within this type of trust. You may choose to place a single life’s assets in this type of trust or may consider using a similar second-to-die insurance policy that covers assets from two lives. The rest of the constraints seen above in irrevocable trust types do apply here as well, which is why it is important to have the trusted triad system when selecting this type of trust. This would include the grantor, the trustee, and noted beneficiaries for the trust itself.
4. Blind Trust
A blind trust is an even more limiting trust and relinquishes control of the assets entirely to the trustee once they are entered into the trust. This can be used most commonly for risk-free fund diversification and should be carefully reviewed and evaluated before entering into. This can be used to maintain an enhanced level of privacy and avoidance of potential conflict of interest. Before considering this type of trust, you should consider reaching out to an estate attorney to ensure that this would be the best type of trust for your unique needs.
If you have questions about your future plan, reach out to the experts at Ascent Law. We have the years of experience needed to navigate even the most complex cases. For more information, please call us at (801) 432-8682.