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  • Daniel Rodriguez

Why you need to establish a trust as part of estate planning

Most people in California think that it’s enough to have a will. However, wills only formalize your final wishes. Adding a trust to your estate plan can result in significant protections for your heirs.

What is a trust?

A trust is a legal entity that’s created in order to manage assets and see that they’re protected for the future benefit of people or organizations. As part of an estate planning strategy, trusts constitute an agreement between the person who established the trust, known as the trustor, and a trustee who manages the assets.

The trustor could be the owner of the assets or a legally designated guardian. Assets placed into a trust could be real, personal, or intellectual property as well as things like jewelry, stocks, or vehicles.

Beneficiaries are people who benefit from the value of these items, usually children or other legal heirs of the trustor. However, trusts can also be established to fund a charitable organization.

The difference between a will and a trust

It’s a mistake to think that executing a will ensures that your final wishes will be honored. However, they mainly designate who will receive and help you avoid dying intestate. That would place the fate of your estate and its beneficiaries in the hands of a probate court judge.

Trusts set the conditions for distributing your assets. They can also be used to determine how your affairs should be managed should you become incapacitation and name guardians for minor or incapacitated children. They can also offer distinct tax advantages and help you avoid probate altogether.

But, what kind of trust do you need?

Two main types of trust

Irrevocable and revocable trusts are the two most common forms. A revocable trust is a legal entity that’s formed while you’re alive. It can indicate things like medical and end-of-life care if you’re incapacitated. You can also divide your assets and set terms for your beneficiaries.

However, if your circumstances or wishes change, you can dissolve or alter the trust.

Irrevocable trusts perform many of the same legal protections and designations. But, they go into effect after you die and cannot be changed or dissolved.

Within these types of trusts are special designations. For example, an A trust is created by a spouse to benefit their partner. It’s also known as a Marital Trust.

Special considerations when forming a trust

If you’d rather leave your children out of the arrangement and leave some assets to your grandkids, a generation-skipping trust could accomplish that. Special needs trusts provide for dependent heirs, such as minor children, siblings, or parents who need ongoing care.

There is also a B Trust, which is called a Credit Shelter Trust. This is created by married couples to shield one partner from the tax consequences of inheritance upon the death of the other.

No matter what stage of life you’re at, it’s important to review your estate plan regularly. Doing so helps ensure that your wishes are respected and that beneficiaries are able to benefit from your bequests.

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