Alternatives to Living Trusts

You might have considered utilizing a living trust. Often, these trusts are a good idea if a person wants to maintain assets for loved ones without subjecting assets to significant taxes or probate.

In reality, however, people often forget a whole range of other types of trusts including revocable and irrevocable living trusts. The type of trust you utilize can make a big difference in the outcome of your estate. Pick the right type of trust and you can really simplify the estate planning process. Pick the wrong trust and you can end up facing a range of complications.

Revocable means revisable, while irrevocable means a person cannot later changes a trust’s terms barring a few exceptions. A revocable trust lets the trust creator modify the trust at some later date. With irrevocable trusts, a person lacks the ability to modify the terms of the trust. 

Revocable or Irrevocable Trusts?

Some people think that because they’re capable of being revised, revocable trusts are a wise choice. In reality, however, revocable trusts come with several setbacks. One, assets in revocable trusts are not protected from creditors to the degree that they are in irrevocable trusts. Additionally, revocable trust assets are factored into a person’s taxable estate, while irrevocable trusts are often not. Provided a person structures assets in the appropriate way, assets placed in an irrevocable living trust are often removed from the taxable estate. 

Other Types of Trusts You Might Consider

Besides revocable and irrevocable trusts, some of the other types of trusts that you might consider implementing in your estate plan include:

• Marital trusts are created by one spouse for the advantage of the other. When one spouse passes away, assets placed in the trust are passed on to the surviving spouse. 
• Bypass or credit shelter trusts are utilized to reduce the impact of estate taxes. These are a type of irrevocable trust that transfers assets from one spouse to another following one spouse’s death.
• Charitable trusts help to establish a legacy of giving in your estate. Two types of charitable trusts exist charitable lead trusts that let a person pass on assets to a certain charity or charities and charitable remainder trusts that let a person receive income from assets for a limited period with any remaining assets passing to a charity. 
• Life insurance trusts are irrevocable trusts that a person designates to hold proceeds from life insurance. A person designates the trust as the policy’s beneficiary. When a person passes away, the policy proceeds pass into the trust.
• Special need trusts assist individuals with people’s needs. These trusts pass on assets without interfering with the right to receive government benefits awarded to the disabled. Assets in these trusts let individuals pay for care or daily needs while making sure they remain eligible for government benefits.