Revocable Living Trust
A revocable living trust has many benefits:
- A trust can go into effect as soon as you create it and can help if you become incapacitated for any reason. Typically, you would be the trustee of your own trust to start, but would name your spouse or a trusted family member or friend to serve as the backup or successor trustee if you are unable to handle everything. This provides a seamless way to assure that your assets will be handled as you wish throughout your lifetime.
- Following your death, the trust allows your heirs to avoid probate court. This means assets will be distributed in months as opposed to years and will reduce legal fees substantially.
- The provisions of a trust remain private after your death, avoiding unnecessary publicity.
- Following your death, the revocable living trust becomes irrevocable, locking in your wishes. It will be up to your successor trustee to distribute assets according to your specific, written instructions laid out in your trust.
Other Types of Trusts
There are quite a few other types of trusts, each useful for a different, specific purpose:
- QTIP (Qualified Terminable Interest Property) Trust: This type of trust is often used in second marriage situations. It provides income for a surviving spouse, while controlling and preserving underlying assets for distribution to children from a previous marriage or other beneficiaries.
- Spendthrift Trust: You may want to create this type of trust if your child cannot effectively handle money, is in a problematic marriage, or suffers from drug or alcohol abuse.
- Life Insurance Trust: This type of trust allows you to avoid estate taxes on the proceeds of a life insurance policy. If done properly, the life insurance proceeds that come through a life insurance trust following death are not counted as part of the estate.
- Special Needs Trust: If you have a child needing ongoing oversight and custodial care due to a disability, this type of trust avoids the interruption of the agency or government benefits due to the child receiving an inheritance.
- Charitable Remainder Trust: This type of trust is often used for a large donation to a charity, a university or another nonprofit. It can provide a tax deduction today along with the ability to generate income during your lifetime.