A trust is a legally binding document wherein you, the trustor or grantor, put certain of your assets into a legal entity, the trust, for the benefit of someone, the beneficiary. It also designates the person or entity, the trustee, who will manage the trust’s assets and disburse them and the interest they earn to the designated beneficiary.
Basic Trust Types
You can establish two basic types of trust: revocable and irrevocable. As their names imply, you can later change or revoke a revocable trust. Once you establish an irrevocable trust, however, its provisions are written in stone and you cannot later change them in any way or revoke the trust.
As your estate planning lawyer in Rochelle Park, NJ, like from the Law Offices of Joshua Kaplan, P.L., likely will tell you, you have wide flexibility in the specific kinds of trusts you can establish as part of your overall estate plan. In fact, it’s fair to say that whatever your goals and objectives, there’s a trust to fit them.
Common trust types include the following:
- Living trust: One you establish that can take effect immediately
- Testamentary trust: One you establish that takes effect only at your death
- Special needs trust: One you establish for the benefit of a special needs child or other person
- Charitable trust: One you establish for the benefit of your alma mater, your favorite charity or your nonprofit organization of choice
- Generation-skipping trust: One you establish for the benefit of your grandchildren, bypassing your children
- Spendthrift trust: One you establish for the benefit of someone, usually an adult child, who you believe does not make wise financial decisions or handle money well
Beneficiaries and Trustees
You can name yourself as both beneficiary and trustee of most types of trusts if you so choose. If you name yourself as a beneficiary, you usually designate one or more other people as co-beneficiaries. If you name yourself as trustee, you should designate a successor trustee to take over management of the trust assets if you die, become too ill or injured to competently manage it, or simply no longer wish to do so.
One of the biggest advantages of a trust is that once you place assets in it, the trust itself owns them rather than you personally. This can save you, your estate and your heirs gift taxes, estate taxes and inheritance taxes respectively. It can also prevent creditors, or even a disgruntled former spouse, from obtaining these assets.
Your estate planning attorney can give you additional information about trusts and their benefits and can also draft appropriate ones for you.