When it comes to estate planning, a will is only the beginning. Many people should also consider implementing a trust, which can safeguard your assets and ensure your final wishes are carried out after you are gone.
As explained by CNN Money, there are many trusts to choose from. Understanding the differences between trusts and how they work is crucial to making the right decision for your estate. Here are a few common types of trusts and the benefits they might offer you.
Once you have developed an irrevocable trust, it cannot be changed. Assets placed into the trust are no longer in your possession, which means you lack authority over them. However, these trusts offer many tax benefits, since you cannot be taxed on items and assets you no longer own.
Revocable trusts can be changed while you are still alive. While they lack the tax benefits of irrevocable trusts, they do provide greater control over your assets and how they are dispersed. For example, you can stipulate that the trust only disperses assets when your heir has accomplished a certain task or goal, such as graduating from college.
Qualified terminable interest property trusts
Divorces and new marriages complicate estate matters greatly. If you have a blended family, a qualified terminable interest property trust allows you to leave assets to certain family members, while also preventing others from claiming them. You can set up these trusts to disperse assets to a current spouse as well as children from a previous marriage, which prevents a lengthy probate battle.
Credit shelter trusts
If you have a large estate and many assets, estate taxes may be a concern. Credit shelter trusts help you avoid exorbitant estate taxes by implementing certain measures when dispersing assets. You can leave a certain amount of money to your heirs, provided it is under the estate tax limits where you live. The rest of the money will be passed to your surviving spouse when you die, who will not be taxed.