A trust is a legal document that allows a grantor to give assets to a trustee who has a fiduciary duty to distribute the assets as instructed. While this sounds a lot like how a will works, trusts can avoid probate, estate taxes and disputes.
The most common kind of trust is a revocable one. A revocable trust can be altered at any time by the grantor. This means they can add or remove assets or beneficiaries or revoke the trust at any time. When the grantor passes away, the trust becomes irrevocable.
While that may work for many people, it isn’t the only option. There are many kinds of trusts with unique wording for different situations. Here’s what you should know:
Giving back to the community
Some people want to give their assets to communities, charities and private organizations. Grantors who make charitable trusts can give charity one lump-sum donation or allow the trust to give smaller, predetermined donations. A charitable trust can also give a donation that’s a fraction of the capital of the estate.
Making your grandchildren beneficiaries
Many grandparents want to give assets to their grandchildren. The intent of a generation-skipping trust is to bypass one generation to benefit another. While a revocable trust may do this, a generation-skipping trust can avoid taxes.
Managing your beneficiary’s investments
Some beneficiaries are not good with financial management. A grantor may worry that their assets would be used irresponsibly and wouldn’t help a beneficiary live a comfortable life. Grantors that make spendthrift trusts can limit how assets in a trust are used by the beneficiary.
Trusts are versatile legal documents that many people benefit from. It can help to reach out for legal help when planning an estate.