A will is an essential estate planning document, but it may not accomplish everything you want. Assets distributed through a will generally must pass through probate, and a will may not provide enough control if you have minor children, a financially vulnerable beneficiary or property you want managed over time.
A trust can complement your will by allowing a trustee to hold and manage assets for your chosen beneficiaries. Depending on how it is structured, a trust may help your family avoid probate, protect an inheritance or carry out highly specific wishes. The right option depends on your assets, beneficiaries and long-term goals, but can include:
Revocable living trusts
A revocable living trust is created during your lifetime and can generally be changed or revoked as long as you remain mentally capable. You may serve as your own trustee and continue managing the property placed in the trust.
After your death, a successor trustee distributes or manages the trust property according to your instructions. Properly funded assets generally avoid probate. However, because you retain control over the trust, its assets are usually still considered yours for tax and creditor purposes.
Irrevocable trusts
An irrevocable trust is generally much harder to modify or revoke after it is established. In exchange for giving up some control, you may gain benefits that are not available through a revocable trust.
Depending on its structure and applicable law, an irrevocable trust may help with tax planning, asset protection, Medicaid planning or preserving property for future generations. These trusts are complex and should be created with careful legal and financial guidance.
Spendthrift trusts
A spendthrift trust may be useful when a beneficiary is not prepared to manage a large inheritance. Rather than receiving everything at once, the beneficiary can receive distributions according to terms established in the trust.
This arrangement may help protect assets from impulsive spending. It may also provide some protection against a beneficiary’s creditors, although the extent of that protection depends on state law and the trust’s language.
Incentive trusts
An incentive trust connects distributions to certain goals or conditions. For example, the trust might provide funds when a beneficiary reaches a particular age, earns a degree, purchases a home or maintains employment.
Conditions should be drafted carefully. Requirements that appear reasonable today could create unintended difficulties for a beneficiary whose health, abilities or circumstances later change.
Charitable trusts
A charitable trust can support a cause while also serving broader estate planning or tax goals. Some charitable trusts provide income to family members for a period before the remaining assets pass to a charity. Others pay a charity first and eventually transfer the remaining property to individual beneficiaries.
Choosing a trust requires more than selecting a name from a list. Professional legal guidance can help you determine whether a trust belongs in your estate plan and ensure that it is properly drafted and funded.