When it comes to crafting a trust that addresses your financial and familial needs and goals, it is best to understand the variety of options available to you. To begin, there are two basic categories of trusts: testamentary and inter vivos. A testamentary trust is the basic one created by your will, which does not come into effect or existence until after you have passed away. However, an inter vivos trust will go into effect during your lifetime, allowing you to create and manage it while you are still alive.
Whether you choose to go with a revocable or irrevocable trust, an inter vivos trust provides you many different options. Irrevocable trusts cannot be changed once they have been made, essentially making them a concrete decision. Revocable trusts can be altered throughout your lifetime, giving you more freedom and ability to adjust matters in response to life changes.
Why Create a Revocable Trust
A Revocable trust is also known as a living trust, and is used to set up a specific plan for an individual’s assets. A grantor, or creator of the trust, will maintain complete control over the trust until the time of their death. That means they could adjust or change the funds or direction in the trust, for example, if they went through a divorce or had a falling out with a certain grandchild or family member. Perhaps they want to add another loved one into the trust or create a new provision. With revocable trusts, the options may seem endless.
Here are the main reasons a person should create a revocable trust:
- Allows a grantor and trustee to manage/distribute assets effectively
- Helps avoid probate, ensuring any assets in the trust go straight to beneficiaries
- Provides a means for tax planning to help limit the hit beneficiaries will take
There are also other types of trusts that can be created, such as a supplemental needs trust and credit shelter trust. Through a supplemental needs trust, a grantor can set aside funds for the long-term care needs of a disabled loved one without causing them to lose out on public benefit programs. A credit shelter trust gives an individual full use of state and federal tax exemptions.
Whatever your financial goals are for the future, a trust can be a great way to ensure these happen.