Estate planning is an essential aspect of financial planning that ensures your assets are distributed according to your wishes after you pass away.
Trusts are an important tool that can help you achieve your estate planning goals, and understanding the differences between the types of trusts can help you make informed decisions about your plan.
Whether you’re just starting to think about estate planning or you’re revising an existing plan, this post will provide you with a clear understanding of the different types of trusts and their respective benefits.
So, let’s explore the differences between a revocable trust, a family trust, and a living trust.
If you have questions about what type of trust is best for you, call an estate planning attorney from The Simone Law Firm.
A revocable trust, also known as a revocable living trust, is a trust that the grantor—or creator of the trust—can change, amend, or revoke during their lifetime. This type of trust allows the grantor to maintain control of their assets while they are alive but also allows for the efficient distribution of those assets after their passing.
When a grantor creates a revocable trust, they transfer their assets to the trust and name a trustee to manage those assets. The trustee is typically the grantor, but they can also be a trusted family member, friend, or professional trustee. The grantor can change the terms and conditions of the trust, remove assets from the trust, or revoke the trust entirely if they choose to do so.
One of the main benefits of a revocable trust is that it avoids probate. Probate is the legal process by which a court determines the validity of a will and oversees the distribution of assets to beneficiaries.
Probate can be time-consuming and costly, and it is often best avoided if possible. By transferring assets to a revocable trust, those assets are not subject to probate and can be distributed quickly and efficiently to the trust’s beneficiaries.
A family trust—also known as a bypass trust—is a type of irrevocable trust designed to preserve assets for future generations. This type of trust is often used by married couples to minimize estate taxes and provide for their children or other beneficiaries after their passing.
When a married couple creates a family trust, they transfer their assets to the trust and name a trustee to manage those assets. Typically, the couple names themselves as the initial trustees, but they also name a successor trustee to take over management of the trust after their passing.
The trust is irrevocable, meaning that the couple cannot change the terms of the trust or remove assets from the trust once it has been established.
The primary benefit of a family trust is it allows married couples to take advantage of both spouses’ estate tax exemptions. When one spouse passes away, their assets are transferred to the family trust, which is not subject to estate taxes. The surviving spouse can then use their own estate tax exemption to transfer additional assets to the trust, further reducing the number of assets subject to estate taxes.
A living trust—also known as an inter vivos trust—is a type of trust that is created during the grantor’s lifetime. This type of trust can be revocable or irrevocable, depending on the grantor’s preferences.
When a grantor creates a living trust, they transfer their assets to the trust and name a trustee to manage those assets. The grantor can also name themselves as the trustee, allowing them to maintain control of their assets during their lifetime. The trust can be designed to provide for the grantor during their lifetime, and then distribute assets to beneficiaries after their passing.
One of the primary benefits of a living trust is that it allows for the efficient distribution of assets after the grantor’s passing. Because the assets are held in the trust, they are not subject to probate and can be distributed quickly and efficiently to the trust’s beneficiaries.
Additionally, because the trust is created during the grantor’s lifetime, it can provide for their care and well-being if they become incapacitated and unable to manage their own affairs.
There are a number of different types of trusts that can be used for various purposes. Revocable trusts offer flexibility and control to the grantor while allowing them to avoid probate. Family trusts provide asset protection and tax benefits to spouses. Finally, living trusts allow the property to pass outside of probate without court involvement or expense.
Each trust has its own unique purposes and advantages. It’s important to consider your goals when selecting which type of trust is right for you.
If you’re uncertain about what type would best meet your needs, it may be wise to consult with an experienced estate planning attorney who can review all the options available and advise on the best course of action.
If you’d like to create a trust, contact The Simone Law Firm. We can help you set up a trust that best suits your needs. Call today to schedule a consultation.