While it’s not something most people want to think about, it’s always a wise strategy to consider what would happen if you were to pass away at some point in the future. It may be uncomfortable, but it must be done to help protect your family if such a thing were to happen when you don’t expect it. One way you can protect your family is by setting up a trust for your children. That way, your assets can be preserved for them. However, there are different kinds of trusts you should be aware of.
The first major category of Trust is called a “Living Trust” because it goes into effect while you are still living rather than after you pass. “Death” or “Testamentary” trusts are created in a will. Living trusts can be further subdivided into revocable and irrevocable.
The person who creates a trust is called the grantor, the person who administers it is called the trustee, and the person (or persons) who receives the benefit of the trust is called the beneficiary. Probate is a legal process administered by the court that handles your end of life affairs i.e. pays creditors and disburses assets.
Revocable Living Trust
The key factor of a “revocable” living trust is
 that the grantor can change it while they are still alive. During that time, the grantor can transfer property into the trust and has complete control over the trust while they are alive and can make changes accordingly. After the grantor dies, the trust can no longer be changed and will payout to beneficiaries accordingly. It helps beneficiaries avoid probate and can include healthcare and end of life provisions. However, any income generated is taxable to the grantor.
Irrevocable Living Trust
The other kind of living trust is an irrevocable living trust. An irrevocable living trust differs from a revocable living trust due to the fact it cannot be altered after it has been established. Assets placed into the trust cannot be removed. The reason to create such a trust is to protect those assets from taxes and creditors so they can be saved for the beneficiaries.
Testamentary Trust
A different kind of trust you should know about is called a testamentary trust. Unlike a living trust, this trust does not actually exist while the grantor is alive. Instead, the trust goes into effect after their death via the instructions included in the grantor’s will.Â
Work with a trust attorney when writing your will to set up the creation of this kind of trust. They can help you ensure that your assets are distributed to your spouse, children, specific charities or others you may want to make beneficiaries.
Bypass Trust
If you are worried that you will outlive your spouse, another kind of trust you should consider establishing is a bypass trust. The assets in the trust are transferred to your spouse after your death. They are then managed by the trustee and are finally paid out to any heirs after your spouse’s death. It helps your children avoid paying the sizable estate tax on your assets.
It’s always a good idea to plan for the worst. You need to ensure that your family will be protected after you’re gone. One way to protect your children in such an unfortunate scenario is to set up a trust. Consider the different kinds of trusts available and choose the best one for you and your family.
