What should you know about trusts as part of an estate plan?

Creating an estate plan is a critical task for adults. Once a plan is made, it provides a testator’s loved ones – and the state – with specific instructions related to the end of that person’s life and what should happen to their assets after they pass away.

There are several things to consider during the estate planning process. For example, you may want to establish one or more trusts to pass assets along to your beneficiaries.

Categories of trusts

There are two very broad categories of trusts: revocable and irrevocable. Both types of trusts can get your assets to your loved ones without having to go through the probate process. This enables privacy to remain a priority, which can protect your loved one after you’re gone. Even though these categories of trusts have those similar points, there are other ways that they differ.

A revocable trust is one that you can change or cancel at any time. Because you retain control of the assts, revocable trusts don’t provide protection from creditors. This means that creditors can try to stake a claim to the assets held by the trust. This ended the day you pass away because the trust becomes irrevocable upon your death.

An irrevocable trust is one that can’t be changed once it’s established and funded. Since it’s controlled by a trustee and not you, it provides protection from your creditors. This allows you to pass along as much as possible to your beneficiaries.

Specific purpose trusts

Some trusts have specific purposes and can accomplish important purposes. Some of the specific purpose trusts that exist include pet trusts, special needs trusts, digital trusts and firearm trusts.

Trusts are consequential resources. If you opt to create one, you should strongly consider working with a legal representative who can get everything set up in an enforceable manner so that your wishes can be followed when you pass away.