Many people in Washington can understandably feel overwhelmed when it comes time to think about estate planning. The choices available to people include far more than just between creating a will or creating a trust. When considering a trust, there are many variations of trusts and each one has specific situations in which it may be most applicable or beneficial.
Benefits of a trust
Among the main benefits common to most trusts are the ability to avoid probate and to give people more control over their estates according to Fidelity. Some trusts may reduce the tax burden on heirs or the estate but the way in which a tax benefit is realized could be very different with different trusts.
Types of trusts
CNN Money explains that trusts can either be established when a person is still alive or after a person dies. The former is called a living trust and the latter is called a testamentary trust. The testamentary trust details are provided in a will that is established prior to death.
Irrevocable and irrevocable trusts
For people who want to avoid taxes being assessed on appreciated value of assets, an irrevocable trust may be a consideration. While this is a significant benefit, it is important for people to know that once they have established this type of trust, they cannot modify the terms of it.
In contrast to irrevocable trusts, revocable trusts are able to be amended by the people who create them.
Trusts for specific needs
Some trusts are designed for very specific needs. A generation-skipping trust can be used to allocate assets for grandchildren and essentially bypass children. A charitable remainder trust gives people a means by which they can leave assets to designated charities.
Some people may want to exercise caution when it comes to maximizing a spouse's tax exemption. In these cases, a credit shelter trust may be used. These are also sometimes referred to bypass trusts.
A marital trust is often used to provide assets to a spouse and those assets may then transfer into that spouse's taxable estate. If providing income for a spouse is the desire, a qualified terminable interest property trust may be worth considering. Upon death of the spouse, assets may transfer to another heir or multiple heirs.
No two situations are the same
Washingtonians should know that estate planning is an extremely personal act. It may also be important to review plans regularly as life changes may necessitate changes to the plans. Working with an experienced attorney is recommended so people appropriately understand their options and choose the planning tools that best match their situations and needs.