November 23, 2016
Types of trusts
There are many types of trusts, the most basic being revocable and irrevocable. The type of trust you should use will depend on what you're trying to accomplish.
Living (revocable) trust
A living trust is a trust that you create while you're alive.
A living trust:
- Avoids probate: Unlike property that passes to heirs by your will, property that passes by a living trust is not subject to probate, avoiding the delay of property transfers to your heirs and keeping matters private
- Maintains control: You can change the beneficiary, the trustee, any of the trust terms, move property in or out of the trust, or even end the trust and get your property back at any time
- Protects against incapacity: If because of an illness or injury you can no longer handle your financial affairs, a successor trustee can step in and manage the trust property for you while you get better. In the absence of a living trust or other arrangement, your family may have to ask the court to appoint a guardian to manage your property
A living trust can also continue after your death—you can direct the trustee to hold trust property until the beneficiary reaches a certain age or gets married, for instance.
Despite the benefits, living trusts have some drawbacks. Property in a living trust is generally not protected from creditors, and you cannot avoid estate taxes using a living trust.
Unlike a revocable trust, you can't easily change or revoke an irrevocable trust. You usually cannot change beneficiaries or change the terms of the trust.
Irrevocable trusts are frequently used to minimize potential estate taxes. The transfer may be subject to gift tax at the time property is transferred into the trust, but the property, plus any future appreciation, is usually removed from your gross estate.
Additionally, property transferred through an irrevocable trust will avoid probate, and may be protected from future creditors.
IMPORTANT DISCLOSURES This information has been prepared by Broadridge Investor Communication Solutions, Inc. Minis & Company does not endorse the content provided, it is to be viewed for informational purposes only. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
« Back to List of News