What are the Different Types of Trusts?
As you prepare your legacy for the next generations in your family, you have many options. Opening trusts as a part of your estate planning is a wise move for many individuals. A trust is another layer of protection for your hard-earned assets, and several different trusts are available for your unique estate. How do you know which type of trust is right for your family and estate? Consulting with a Florida estate planning attorney is essential, but understanding the different types of trusts can also help you decide the best fit. Let’s dive into some of the most common types of trusts used with estate planning.
A revocable trust, often called a revocable living trust, is a very common and simple trust. This type of trust allows you to control the assets in the trust, make changes, and even remove the trust while you’re still alive. You can add almost any asset to a revocable trust, like real estate, bank accounts, and vehicles. Upon your death, the assets in a revocable living trust do not have to go through probate.
One example of how you may use a revocable trust is when leaving assets to a minor child. If you create an estate plan with minor children, it’s wise to use a trust to control how their inheritance is spent if you pass away when the children are under 18 years old. However, over the years, circumstances will change, and your children will eventually become adults, which would require making adjustments to the trust. A revocable living trust makes it simple to make adjustments over the years.
An irrevocable trust is similar to a revocable trust except for one significant difference. Just as the name hints, an irrevocable trust is cannot be changed once it’s in place. People usually choose this type of trust for tax planning or asset protection purposes. Additionally, any revocable trust automatically becomes irrevocable upon the grantor’s death. This ensures that nothing can change with the trust after the grantor dies. A trusted estate planning attorney in Florida will be able to walk you through if an irrevocable trust is right for your estate and situation.
Special Needs Trust
A special needs trust is a specific trust designed to care for a physically or mentally disabled loved one. This type of trust is designed to provide financial support without disqualifying the disabled person from receiving other government assistance. There are special requirements with this trust, so it’s imperative to trust an estate planning attorney to complete it accurately so your loved one will receive the financial support they need.
A charitable trust is a trust set up to benefit a public charity. The IRS establishes specific requirements to qualify as a charitable trust, so keep that in mind as you create this trust. In addition to helping your favorite charity, this type of trust also has tax benefits for you.
We should note there are two different types of charitable trusts, a charitable remainder trust, and a charitable lead trust. The major difference between these two charitable trusts is how the trust’s assets are dispersed. In a charitable remainder trust, the trust beneficiaries receive money from the trust first, and the remaining balance goes to the charity. For a charitable lead trust, it’s the opposite. The charity first receives a set income from the trust, and the beneficiaries receive the remainder.
Life Insurance Trust
For life insurance trusts, the only asset in the trust is the life insurance policy. The purpose of a life insurance trust is to avoid estate taxes on the life insurance payout after your death. This is mainly for individuals with a high net worth because the vast majority of people in Florida will not have to worry about federal estate taxes. However, if you do fall into this category, an irrevocable life insurance trust can be a good tool to help ensure more of your estate is passed to your beneficiaries.
A joint trust is ideal for individuals who want to create a trust together. Married couples who wish to open a trust together often choose a joint trust. In a joint trust, both individuals control the assets in the trust and if one person dies, the other one becomes the trustee. Therefore, a joint trust makes it easier for a married couple to manage a trust together.
Consult a Florida Estate Planning Attorney
These trusts are some of the most common types, and there are more types of trusts that fit almost any unique situation or need. The best way to choose the right types of trusts for your estate is to consult with an expert estate planning attorney in Florida. The Merriman Law Firm is here to serve all of your estate planning needs. We have experience creating simple wills and trusts, plus complex and high-valued estates. Contact The Merriman Law Firm for a free initial consultation to learn more about your estate planning and trust needs.