When embarking on the estate planning process, there are various documents one should consider including. While one is likely to think that a will is the most important document, the reality is that a trust can help provide immense protection for property and assets and even provide added benefits, such as generating less familial disputes and avoid high taxes. Thus, one should consider the various types of trust and how they could serve them in their estate plan.
Choosing a trustee
No matter what type of trust or trusts one decides on, choosing a trustee is an important decision. While an individual creating the trust and providing the assets for the trust is the grantor, a trustee has a much different role. A trustee can be either an individual or an organization. They will temporarily hold onto the assets in the trust; however, they never have ownership of them. The role of the trustee is to act in the best interests of the grantor and their beneficiaries. Additionally, they must carry out the mandates of the trust, making it important to consider only appointing one person for this position.
When choosing a trustee, one should consider the following factors. This includes where they are located, the role of the trustee and their understanding about investing.
The different types of trusts
Seven types of trusts will be explored. First is a testamentary trust, which is effective upon the death of the grantor. Advantages of this type of trust include preserving assets for a child of a previous marriage, providing a spouse with a financially secure future, ensure that a special needs beneficiary are looked after and charity gifts are protected. Next, is a living trust, which is established while a grantor is alive and has the ability to transfer assets or revoke the trust.
Third is a charitable trust, which is set up to benefit a charitable organization. Next is a joint trust, which is when two people have control of the assets in the trust, and one of them passes, the surviving individual becomes the trustee. Fifth is a blind trust, which is when the beneficiaries have no knowledge or information about the contents of the trust. Next is an asset protection trust, which is used to protect assets from creditors but can be costly to set up. Finally, there is a special needs trust, which is created for the benefit of an individual under the age of 65 with a mental or physical disability.
Choosing the right trust for you and your estate plan is no easy feat. There is no one size fits all estate plan, so it is imperative that individuals take the time to articulate their goals and understand how they can be achieved. Additionally, it is important to keep an estate plan up to date, making it important to revisit an established estate plan frequently, especially after a life event.