Creating a trust is one of the most common ways people use to pass on the assets without having to pass the estate through probate and deal with courts, judges, and create a public record of what the individual has accrued over his or her lifetime. Just like there are many ways to pass on an estate to heirs, there are also different types of trusts that people can use to accomplish these goals.
Picking the right type of trust for one’s estate depends on many things including the type of assets in one’s estate, the individual’s goals, and whether some of the assets might go to minor children that will be unable to manage finances for themselves. Whichever type of trust you choose to go with, it should be based on careful analysis and attention to detail to ensure that your final wishes are carried and heirs receive their due inheritance.
Inter vivos trusts
An inter vivos trust, often referred to as a “living trust,” is a trust that the grantor (the person establishing trust with his or her estate) establishes and acts as the trustee of while he or she is still alive. There are also two types of living trusts, revocable and irrevocable trusts, which each serving slightly different purposes.
A revocable living trust allows the grantor to modify, amend, or otherwise change any aspect of the trust as he or she sees fit. Revocable living trusts are often used by individuals who are conscious of possible life changes in their futures and want to make sure they have the authority to amend their trust to adapt.
An irrevocable trust is a living trust that cannot be modified by the grantor. However, if the language of the trust allows the grantor to do so, he or she may continue to draw an income from the trust’s assets. These types of trusts are often established with respect to trying to avoid penalties when applying for Medicaid to pay for skilled nursing care.
Will trusts, or testamentary trusts, are created through the grantor’s last will and testament and takes effect only after the individual passes away. Although the estate must still pass through probate, these types of trusts can be effective at lowering estate taxes for heirs and helping manage assets for minor children.
When assets are placed into a testamentary trust, a trustee can manage the assets until the decedent’s minor children or heirs reach a certain age the testator believes will be able to properly manage. One drawback is that the trust will require period review by probate courts to ensure their proper management, requiring a trustee willing to accept the responsibility for the good of the decedent’s wishes and his or her heirs.