Part of your estate plan is protecting your assets for loved ones. You want your friends and family to be able to enjoy your legacy without worrying that someone else could make a claim for that asset.
As you learn more about what works well for your estate plan, a trust can seem like a complex piece to include. Often, trusts are framed as a way to avoid probate or some of the other challenges that come with administering an estate.
Here’s what you should know about trusts and when you might want to consider including a trust in your estate plan.
Types of trusts
In general, a trust is a way to choose who will receive an asset and protect it from outside interference. You can establish a trust while you are still alive (living trust), or a trust that takes effect after you pass away through your last will and testament (testamentary trust).
Typically, both types of trusts appoint a trustee who will oversee the administration of the trust, and outlines the beneficiaries who receive the assets of the trust. In many cases, the trust stays in place until the trust no longer controls any assets.
A trust can be revocable or irrevocable. There are times when an irrevocable trust can be revoked, but the exceptions that allow revocation are rare.
When could I need a trust?
A trust can work in a variety of circumstances. One benefit of a trust is protecting an asset from creditors. The terms of a trust also tend to remain private, as opposed to a last will and testament.
During probate, your estate will pay the costs of administration and taxes first, valid creditors second, and beneficiaries last. If you pass away and your estate still has outstanding debt, the assets in the trust may be shielded from that debt.
The trust can also protect your assets if there is a disagreement between beneficiaries regarding whom you determined would receive the asset. In these cases, the trust clarifies how you want to distribute the asset.
A trust can be a valuable part of your estate plan and may help you ensure that your assets go to the loved ones as you have directed.