Setting up an estate plan can be daunting, especially if you are just starting out. There are a lot of elements that go into estate planning and deciding if you need a trust is just one element.
If you are debating whether or not you need a trust, it is likely that you already have a will. If that’s the case, you are ahead of the game, as only four in 10 Americans have a will.
Do you need a trust?
In the most basic sense, a trust is a written document that involves three people: you, a trustee, and a beneficiary. To give a real-life example, an individual may create a trust as a way to pass on money to an heir or other family member after they are gone. The trustee is the individual who has control of the assets until they are in the beneficiary’s possession.
Typically, individuals with a higher amount of assets are the ones who will want to set up a trust, as they are the individuals who have assets to give. However, that does not mean that you need to have a lot of money to have a trust. If you have a lump-sum that you want protected, you can create a trust.
What kind of trust?
There are many types of trusts out there: revocable and irrevocable, asset protection, charitable, special needs, constructive and spendthrift. The list goes on. Because there are so many to choose from, many find it difficult to know where to start and what trust will be right for them. Legal counsel can help you determine which is best for you, and while it is up to you on what type of trust you go with, there are elements you may want to think about.
- Revocable vs. irrevocable: A revocable trust can be altered or revoked, as the money is still in your control. On the other hand, you cannot alter or revoke an irrevocable trust.
- Living vs. testamentary: a living trust is one that you create while you are alive. A testamentary trust stems from your last will and testament, and follows the instructions of your last will and testament.
Trusts can be confusing to sort out, but they are a great way to take control of your assets. Determining what type of trust is right for you is an important step in creating your estate plan.