A trust is a great way to plan for your estate if you want to solidify legal protection for assets. This ensures that the legacy you have built will be carried on to future generations how you wish. It also sees to it that your assets are distributed accordingly, reducing the need for unnecessary paperwork, saves time, and can help to reduce estate taxes. If you are making plans for your estate, a trust can be an essential tool to consider. You may be asking yourself, what are the types of trusts anyway? And how can they benefit you? And what happens if someone you included in your trust passes away before you? Here we have aimed to answer these questions.
The 3 Types of Trusts
There are three types of trusts that are used most frequently, that can help you protect your assets. The first is a revocable living trust, and a living trust is a document created by you, where you name a trustee. This trustee has the duty to manage your assets based on the rules you described when writing the trust. A revocable living trust allows you to change or cancel your trust at any time you wish to while still alive. A revocable living trust gives you freedom to remove or add assets from the trust, add new beneficiaries, remove old beneficiaries, sell off trust assets, change trust guidelines, and avoid probate. When you pass away, the trust becomes irrevocable and can no longer be changed.
Secondly, there is the irrevocable living trust. There are many similarities between a revocable and irrevocable trust. The key difference is that an irrevocable living trust cannot be changed or cancelled once established. With a revocable living trust, you are transferring ownership of assets without the freedom to make edits. Aspects of your trust that you cannot easily change include your initial instructions written in the trust, the ability to sell your assets, and your listed beneficiaries.
Lastly, you have the asset protection trust (APT), which is exactly how it sounds. The main purpose of this kind of trust is to safeguard your assets from creditors. Asset protection trusts can protect against issues such as creditor claims, judgements against the estate, and lawsuits. These trusts are “self-settled”, so you can choose yourself as a beneficiary and access the assets anytime you want to. If established properly, grantors should be able to prevent creditors from seeking assets.
In your revocable, irrevocable, or asset protection trust, you may have to list beneficiaries who will receive a portion of your estate. Part of estate planning is coming to terms with mortality, and making sure our legacy is given to future generations of family, friends, or a charity organization. As a DC wrongful death attorney from Cohen & Cohen, P.C. explains, if a beneficiary passes away before you do unexpectedly because of another at-fault party, then you may need to make updates to your estate plan. While this is not a task anyone wants to have to do, it is important that an estate plan reflects current circumstances and relationships.