Types of Trusts

Trusts are a great way to organize your estate and ensure that your money is left in good hands. There are several different types of trusts that you can use to manage your money, depending on your personal circumstances. Here are a few of the most commonly used types of trusts out there.

Revocable or Living Trust
Living trusts are commonly used as an alternative to wills to manage your estate. With a revocable trust, you can change or alter most aspects of the trust throughout your lifetime, and then you can specify that the assets contained in the trust be distributed according to your wishes. Many people use living trusts to avoid the probate process that you must go through with a will, which can be very time-consuming and frustrating.

Irrevocable Trust
With an irrevocable trust, you cannot change the terms of the trust once you have set it up. Even the trust’s creator will not be able to make changes to it. This type of trust is helpful if you want to ensure that your wishes for your estate are followed exactly, but it can also have some negative consequences when not planned correctly. Tread carefully with these trusts, as they can be tricky to navigate.

Crummey Trust
A Crummey trust is created to leave money to your children and avoid estate taxes. With this type of trust, you can make yearly contributions up to a certain limit, which the child has 30 days to access. If they do not use it for anything, the money then stays in the trust until they reach a certain age. Many people use these trusts to plan for their child’s education or future living expenses.

Charitable Trust
Trusts don’t have to be just for people – they can also be used to give money to charities or causes that you support. A charitable trust is designed specifically for this purpose. This helps the trustor avoid estate taxes and manage their contributions to the organization that they care about. Setting up a charitable trust also usually has social benefits for the trustor and allows them to develop a positive relationship with the charity.

Special Needs Trust
This type of trust is used to help support a disabled beneficiary. In particular, it is set up so that legally, the trustee can continue to receive government benefits even with their income from the trust. These trusts are usually created specifically for the purpose of helping the trustee with things that government benefits do not cover. The trustee must meet the legal definition of a special needs person in order to qualify for this type of trust. If you have an adult child or relative who struggles with health problems or disability, this is a great way to ensure that they are taken care of.

Asset Protection Trust
This type of trust allows you to set money away so that it cannot be taken by creditors in the future. These trusts are not particularly common, but they are helpful if you believe you are being unfairly targeted by creditors or may be in the future, as they can legally prevent your assets from being seized.

Setting up a trust can be quite complicated, so if you are interested in putting one together, contact a lawyer who has experience in estate planning. They will be able to help you decide what kind of trust you need, assess the legal and financial implications of setting one up, and help you work through all of the documents and processes you need to set one up.