We believe everyone should have an estate plan to ensure that the maximum amount of their estate’s assets pass to their beneficiaries. And while many people think a will alone can do the job, often they aren’t enough as they can lead to family conflict, unexpected taxes, and higher probate costs. Therefore, it’s recommended that an estate plan includes the use of one – or more – trusts in conjunction with, or in addition to, a will. 

A trust establishes a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, property or assets for the benefit of a third party, the beneficiary. Trusts can be arranged in many ways, and are often elected for …

• Privacy as the terms of a will, for example, may be public in some jurisdictions. So while the same conditions of a will may apply through a trust, you may instead opt for a trust to avoid having your will made public.
• Estate planning as the assets of a deceased individual will be passed to the spouse and then equally divided among the surviving children.
• Tax planning as the tax consequences of trusts is typically lower when compared to alternatives.
• Control of your wealth as you can specify the terms of your trust, controlling when and to whom distributions may be made.
• Protection of your legacy as a properly constructed trust can help protect your estate from your heirs’ creditors or from beneficiaries who may not have experience with money management. 

With a basic understanding of what trusts are and some reasons why they’re elected, Living Trusts and Testamentary Trusts are two of the most common types. 

Living Trusts 

A living trust – also called a revocable trust or an inter vivos – is usually created by the grantor during the grantor’s lifetime through a transfer of property to a trustee. The grantor will then typically retain the power to change or revoke the trust as it is flexible and can be dissolved at any time should circumstances or intentions change. Upon the death of the grantor, the trustee must then follow the rules set forth in the trust concerning the distribution of property, the payment of taxes, and expenses. 

Testamentary Trusts 

A testamentary trust – also called trust under will – is created by a will after the grantor dies. It allows the grantor to take advantage of estate tax reduction through the unified credit shelter which is the maximum amount of assets the IRS allows you to transfer tax-free during life or at death. There are, however, many more complicated types of trusts used in estate planning that apply to specific situations such as:

• Asset Protection Trust
• Charitable Trust
• Constructive Trust
• Special Needs Trust
• Spendthrift Trust
• Tax By-Pass Trust
• Irrevocable Life Insurance Trust
• Qualified Domestic Trust
• … and more