Setting up a trust allows you to pass on assets to your beneficiaries without going through probate. To meet different needs, there are various types of trusts.
1. Special needs
A special needs trust is for children, including adult children, who have special needs. The benefit of setting up a special needs trust is it won’t affect the beneficiary’s eligibility for government benefits for their disabilities. A regular type of trust affects their eligibility. They would most likely lose their government benefits until all of their inheritance is gone.
Revocable trusts aren’t set in stone. You could cancel or modify them as much as you want until you die. When you set up a revocable trust, you could name yourself as the trustee and someone else as the successor trustee. The successor trustee would automatically become the trustee once you die. It’s also possible to assign a co-trustee.
Once you set up an irrevocable trust, it’s set in stone. You can’t cancel or modify it. Some people open irrevocable trusts to protect assets from creditors and taxes. It’s a popular strategy for large estate planning.
If you set up a marital trust, the beneficiary must be your spouse. This type of trust passes on assets tax-free to your spouse when you die. It’s possible to structure them in a way that any remaining funds or assets go to your children once your spouse dies. However, the tax-free benefit won’t apply to your children.
5. Charitable remainder
A charitable remainder trust pays the beneficiary a portion of the assets, whereas the rest goes to the charity of your choosing. You could name yourself as the beneficiary of the trust and receive income from the trust on a routine basis.
It’s worth looking into your options in types of trusts to set up beyond just revocable and irrevocable. You could reduce your taxes and find a distribution strategy that you’re happier with when you consider other types of trusts.