Three Types of Trusts Available for Estate Planning

Please bear in mind that there are many types of trusts and this is only a brief description of three of the most commonly used trusts for estate planning. You should discuss your options for trusts with an experienced estate planning attorney.

1. Living (revocable) Trusts: With a living trust, you maintain control of the trust and can change or dissolve it as long as you are alive. Unlike a will, a living trust is not part of the public record. The trust can also be used to help you protect and manage your assets if you become incapacitated. However, assets in a living trust are not protected from creditors, and you are subject to income taxes on income earned by the trust. In addition, you cannot avoid estate taxes using a living trust.

2. Irrevocable Trusts: Unlike a living trust, an irrevocable trust can't be changed or dissolved once it has been created. You may have to pay gift taxes on the value of the property transferred into the trust. However, all of the property in the trust, plus all future appreciation on the property, is out of your taxable estate. Property transferred to your beneficiaries through an irrevocable trust will also avoid probate, and property in an irrevocable trust may be protected from your creditors.

3. Testamentary Trusts: Established by your will, these trusts don't come into existence until your will is probated. At that point, certain assets passing through your will can move into the trust. After probate, these trusts work very much like other trusts. The terms of the trust document control how the assets within the trust are managed and distributed to your heirs. And, since you have a say in how the trust terms are written, these types of trusts give you a certain amount of control over how the assets are used, even after your death.