Estate planning is a necessary step to communicate your wishes regarding everything from medical care to distributing assets to your potential heirs. A large part of the process involves trusts.
Trusts can help with tax issues and creditor protection. They can also help to provide funds for family members or a favorite charity.
Trusts can take two forms: revocable and irrevocable.
Revocable trusts, also known as living trusts, are not set in stone and can be altered as needed. The primary benefit is the ability to sidestep the often complex probate process. The trust helps to avoid those steps that can be both complex and lengthy, not to mention staying out of the public eye.
Specific responsibilities, including tax payments and investment return reports, come with a revocable trust.
Conversely, irrevocable trusts in most scenarios cannot be changed or amended once finalized. Assets transfer from an estate, paying income tax, and filing a separate return. The increased protection from both estate taxes and creditors makes these estate planning mechanisms attractive.
These trusts can take many forms and include:
- Irrevocable life insurance trusts – From setting aside funds for estate taxes to protecting a family business, this type of trust can keep family legacies going long into the future
- Charitable remainder annuity trusts – Leaving a legacy of charitable contributions is the goal of many who set up trusts. Primary beneficiaries can benefit from the income it provides, with the remaining money going to favorite charities or vice versa.
- Charitable remainder annuity trust – This type of trust can help you leave a long-lasting philanthropic legacy by establishing a trust for your primary beneficiaries to receive income to start the following chapters of their lives. From there, a chosen charity receives the remaining assets.
- Special needs trust – For families with a disabled family member, this trust can help maintain government benefits due to a disability while providing additional and much-needed income to them.
Legacies left behind can take many forms. A well-thought-out and detail-oriented estate plan with various trusts can help families move forward after a tragic loss and ensure they will be cared for long into the future.