A trust is defined as an estate planning tool that is used for the transfer of assets to the beneficiaries or legal heirs, after your death. At present, there are several types of trusts. When established properly, a trust can help in transferring your valuable assets to your heirs conveniently.
Trusts provide an effective way to keep the immovable and movable property away from the probate process. In this way, you can eliminate or lessen taxation on the assets that you list in the trust. In this article, we are going to understand the different estate planning trust types available.
Benefits of Trusts
Trusts help manage the property, estates, or assets that are held for a person who is not capable of being financially accountable till he/she be deemed for the management of the assets themselves.
It also helps reduce estate taxes, asset allocation into the desired hands, protect from creditors, avoid court fees and probate, and protect assets among family members themselves
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Different Types of Trusts
Trusts are mainly classified into two forms as revocable and irrevocable. They both are established during your lifetime and is estate planning living trusts. Let us look at them in detail.
A living trust is made by a trustor during his/her lifetime, with property or assets intended for the use of that individual during their lifetime. Such trust provides benefit to the trustor while alive. However, it passes the property and assets on to a beneficiary upon their demise.
A bypass trust estate planning is ideal for those who do not wish their estate to get subjected to federal estate taxes several times. This type of trust is often used by married couples to pass their assets to the surviving spouse. Later, on the death of the surviving spouse, the assets are then passed to the children.
A revocable trust estate planning can be modified or canceled by the creator at any time. The assets present in the trust are owned by the grantor. Any revenue yield by the trust has to be compulsorily reported on their personal taxes. However, this trust changes to irrevocable at the time of the death of the trustor.
An estate planning irrevocable trust can’t get changed or revoked by the grantor. It requires the permission of its beneficiaries to accomplish the task. When this type of trust is formed, the grantor relinquishes its control and ownership of the assets that are listed in the trust. It is then transferred out of the personal estate.
Though there are several types of trusts that come with distinctive benefits and features. Almost all of them help safeguard your wealth as well as your financial legacy and provides an opportunity to give back to your dear ones in a beneficial way.