Estate & Trust planning is an important thing to consider. There are different types of trusts, and each serves a unique purpose. It’s important to know the differences.
The most commonly used trust in estate & trust planning is a Revocable Trust.
This type allows a person to create a trust, with the option of revoking it. Unless provided otherwise, it is revocable at any time. If a married couple creates a trust, it generally can be revoked by either spouse if it has joint property. However, it can only be modified by both spouses.
Just about anyone can create a trust. All that is required is to be of sound mind, and be at least 18 years old.
Revocable trusts are often used because it can be used to bypass probate, and thereby reduce the time and expense of transferring assets. At the same time, however, the person who created the trust retains a certain control over the assets. He or she typically can sell or dispose of trust assets. And they can add new assets to the trust. A person’s home can also be added to the trust without losing homestead status. This protects a home from the claims of creditors in most situations. The exception is a mortgage holder, who retains the right to foreclose if the mortgage note is not paid.
Another type of trust is a spendthrift trust.
The Spendthrift type of trust is used to protect the trust assets from being spent by the beneficiary. It also provides some protection against creditors. In order to be effective, it must apply to both voluntary and involuntary transfers to a beneficiary. And the level of protection differs based on whether the trust is revocable or not. A spendthrift trust may be good where parents have a special needs child. If you start a trust early and place the money in a good mutual fund, the trust has a chance to grow over time.
We have helped many people prepare trusts, especially revocable trusts. In each case, it’s important to sit down with your attorney and review all the options that are available. Each trust should be tailored to fit the needs of that particular client.