A trust is a legal arrangement that creates a relationship in which a trustor gives a trustee the right to hold and maintain assets until instructed for the benefit of a beneficiary. Many people make trusts alongside their will because a trust can avoid probate, estate taxes and disputes.
There are many kinds of trusts with unique legal wording. Here’s what you should know:
Kinds of trusts to consider
Many people create revocable trusts. A revocable trust allows the trustor to alter or revoke the trust at any time. This may mean they add or remove assets or beneficiaries. Once the trustor passes away, the trust becomes irrevocable and can’t be altered without the beneficiaries permission.
Here are several more trusts to consider:
- Incentive trust: This trust can be made with specific clauses that must be met before assets are removed, such as the beneficiary going to college.
- Pet trust: This trust can provide funds for a pet. The funds could be used to provide a pet with food, clothing, shelter, medical care and grooming.
- Special needs trust: This trust can be used for someone who already benefits from supplemental income or health benefits. The beneficiary would only gain enough of the trust funds to maintain their special needs benefits.
- Generation-skipping trust: This trust would skip one generation to be used by a generation younger, such as a grandchild.
- Spendthrift trust: This trust can be used to help provide for a beneficiary, but it limits how much of the funds the beneficiary has access to. This trust is often preferred when a beneficiary is not good at maintaining their finances.
Learning about your trust options could help as you create an estate plan. You may need to reach out for legal help to learn more.