Many people assume once they have a will their estate plan is complete, but there are various other items that could be valuable additions to an estate plan.
A trust is an example of one of these potentially valuable additions. You might believe that you do not own enough to justify setting up a trust or that trusts are only for “rich people” but that is not true.
What a trust can do for you
There are many reasons people set up trusts. A trust can hold certain assets and shield them from taxes or creditors. The assets are preserved for distribution to your heirs upon your death. You can also use a trust to support a charitable cause.
Before you set up a trust, you should first decide which type is right for you. Trusts can be revocable or irrevocable.
The main difference between the two types of trusts is that a revocable trust can be changed or revoked during your lifetime. Once an irrevocable trust is established, it generally cannot be changed or revoked without the consent of all beneficiaries.
Grantor retained annuity and qualified personal residence trusts
Some irrevocable trusts are designed to only last for a certain period, such as a year or two, rather than your entire lifetime. These include grantor retained annuity trusts and qualified personal residence trusts.
A grantor retained annuity trust is often used to minimize taxes on assets you want to give to beneficiaries. You place assets in the trust and receive a regular annuity payment.
Once the trust term ends, any funds remaining are distributed to your beneficiaries free of a gift tax. A qualified personal residence trust generally works the same way, with real estate being the asset placed into the trust.
Additional types of trusts
There are various other types of trusts that can be set up depending on what your goal is, such as contributing to a charity, putting aside funds for a family member with special needs or leaving assets specifically to grandchildren.
After a careful examination of your needs and goals, you will know what type of trust is best for you.