An Explanation of the Different Types of Trusts

Some rights reserved by dhendrix73There are several different types of trusts. Most commonly, trusts are a way people leave their money to specific recipients. Trusts are one of the best ways people have to make sure their money is properly distributed. It also provides a certain amount of protection for the recipient of the money and the one giving the money, as the directions and laws are so clear.

Certain types of trusts also provide a way to avoid probate. A probate lawyer can tell you that avoiding the lengthy process of probate is preferable to most people. It gets tiring and becomes expensive, because those who are provided for in the will get less money overall once the process is done and estate taxes assessed if certain decisions aren’t made ahead of time. Thus, estate planning is essential to make sure your heirs receive the most money they can. Trusts are a great way to do this.

Trusts are not meant for everyone or for every situation. An estate-planning attorney can help assess whether it would be advisable to create a trust and help you choose which type and when to create it. The amount of money in an estate, the amount of heirs, the type of heirs, other types of accounts money is available in, marital situation, etc. are all things considered during estate planning.

There are several types of trusts available. Let’s start with revocable and irrevocable trusts. They are kind of self-explanatory, in that revocable trusts can be revoked and irrevocable trusts cannot. Both help with estate taxes and some many other situations

Revocable trusts are often used as a way to protect assets now, like your home. You can change the assets included in the trust as you go along. It is often most helpful while you are alive.

An irrevocable trust is created as a way to avoid estate taxes. That is because the money is essentially removed from your assets and estate and is not taxed. But, that is also why you want to be sure that you are truly sure of your wishes for those assets. Thus, a lot of planning and care should be taken when creating this type of trust.

Something becoming more and more common is the Qualified Terminable Interest Property Trust. It’s becoming more common as blended families become more common. Often, we have specific wishes about how our assets should be passed along. A second spouse might be who a parent wants to get the money—but the children think they should have it or vice versa. It’s a complicated situation at best. This type of trust can help simplify the situation, or at least make wishes clear.

There are many other types of trust, too many to mention. Some include:

Life Insurance Trusts—a way to separate out life insurance from estate taxes

Generation Skipping Trusts—a way to give money to the grandchildren, instead of children

Credit Shelter Trusts—a way to help married couples, in that it protects the estate when the first spouse dies

Charitable Trusts—allows a portion of the trust to pass right to a charity, and creates a tax deductible contribution

Dynasty Trusts—lengthens the life of a trust beyond usual legal limits

Attorney Christopher D. Smith is a Lakewood Ranch, Florida attorney with SmithLaw Attorneys. He concentrates in bankruptcy, civil litigation, probate, and elder exploitation cases in the Sarasota and Bradenton area. Call 941-907-4774 to learn more and to ask about our free consultations.

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