When planning your estate, creating a trust can serve a variety of objectives. When you establish and fund a trust, you transfer certain assets into the custody of a third party, or trustee, who makes sure the trust assets pass to your beneficiaries as intended.
Review the common types of trusts and how you might use them in your estate plan.
Sometimes called a living trust, a revocable trust makes sense if you want to keep control of your property until you die. With this structure, you serve as trustee during your lifetime and then choose a trustee to succeed you.
You can change or cancel a revocable trust whenever you choose. While it will not help your heirs avoid estate taxes, it can potentially help them avoid the probate process.
Although a revocable trust may help avoid probate, it is usually still subject to estate taxes and creditor claims.
Unlike the flexible structure of a revocable trust, an irrevocable trust is permanent. This type of trust allows your heirs to minimize estate taxes and potentially avoid probate but does not allow you to maintain control of the trust assets during your lifetime. Many people prefer the advantageous tax structure of an irrevocable trust, which also shields its assets from legal judgments.
You can choose from many types of trusts within these two main categories depending on your estate planning objectives. For example, you can establish a trust to provide for your grandchildren or pay for long-term care for a disabled family member.