Estate Planning for Beginners Part 2: Trusts
We’ve said it before on our blog and we’ll say it again: It doesn’t matter whether you’re a billionaire business executive or a teacher with a modest salary, it doesn’t matter whether you’re the patriarch of a large family or a stay-at-home mom of a newborn, a revocable living trust may be exactly what your family needs to protect their assets and their best interests. This is because a trust is probably the most comprehensive and versatile tool in your estate plan, and is a key part of helping you accomplish your goals.
There are two basic kinds of trusts—revocable and irrevocable. Revocable means that it is able to be revoked or changed so long as the grantor (the person who created the trust) is still living. Logically enough, an irrevocable trust cannot be changed once it has been signed. The reason this question of revocability is so important is because a trust is not merely a set of instructions for how your wealth should be distributed, a trust actually owns the property placed within it, with the person or people serving as trustee (usually for a revocable trust this is the grantors themselves, while they are living) controlling the trust property within. It is for this very reason that trusts can be such a powerful and flexible tool for tax planning and estate planning.
The specifics of your trust will vary greatly depending on what you hope to accomplish. Parents of young children may wish to include a general trust for the benefit of all the children, with distributions made to the guardians as necessary. This general trust can be split into separate individual trusts when all of the children have reached a certain age or graduated from college. Parents (and often grandparents) may want to include education trusts under the umbrella of their revocable living trust. Many families feel it is important to include instructions for charitable giving in their estate plan, and may choose to set up a charitable trust with their children or grandchildren as trustees. Pet owners often create pet trusts to ensure that their animals will be well cared after the owner has died.
A trust, much more than a simple will, allows the grantor far greater control over their assets—and for a longer period of time—which is why trusts are particularly useful for anybody entering into a second or third marriage, or for any parent who worries about the choices a beneficiary might make once they come into their inheritance. Unlike a simple will, trusts are designed to withstand the test of time, allowing you to leave a legacy that can last for decades.
