Trusts offer flexibility and options that traditional estate planning — i.e., writing a will — simply cannot match. A trust gives you power over what happens to the estate even after you are gone, and it can also offer options to save money, especially in taxes, so that the estate goes to your heirs and not the government. Let’s take a moment to review some of your different trust options.
Irrevocable and revocable trusts
The first distinction is between irrevocable and revocable trusts. You can use both to keep your assets out of probate. An irrevocable trust has to stand once you fund it from your assets; you cannot change it. A revocable trust offers you more options, in some senses, because you can alter it. However, it does not offer as much security for an unexpected death as only the assets put into it prior to death avoid probate. So, you can add to it if you want, but failing to do so in time leaves you no recourse.
Living trusts and testamentary trusts
Another key distinction is between living trusts and testamentary trusts. With a living trust, you start the trust and fund it even while you are still alive. With a testamentary trust, while you set it up before you pass away, you keep your assets until your death, at which time they are used to fund the trust.
Now let’s look at a few examples of specific trusts:
An educational trust
An educational trust most often focuses on college tuition and related costs, like books or room and board. It’s a way to leave money to a younger heir and to know they will use it for their education, not for anything you may consider frivolous. With the recent rise in student debt, this can be a huge benefit to that heir.
An incentive trust
Incentive trusts take a few different forms, but they generally act as rewards for meeting specific goals. Money pays out, often on a yearly basis, when those goals get met by the heir. For instance, to give an heir an incentive to work hard and have a lucrative career, rather than living off of an inheritance, the trust could pay them only as much as they earn every year. Failing to work means no money at all while earning more increases the trust benefits.
These are just a few options. You also have things like special needs trusts, spendthrift trusts, age-based trust and many more. Make sure you really understand all of the options at your disposal and what you can do to settle on the right ones for you and your family.