Different Kinds of Trusts and Their Uses

 Posted on December 06, 2013 in Beneficiaries

If you have property or assets that you want to leave to your heirs, then you have several options.  A trust can shield these assets from taxation and also probate.  It allows you to protect your legacy and control your wealth.  They are essential to good estate planning so it is important to know what they can do.

There are two types of trusts.  The first is a living trust, which is called that because it is active during the grantors lifetime.  A living trust can either be revocable or irrevocable.  A revocable trust can be changed at any time in the grantor's lifetime.  If a relationship, circumstances or your intentions change then it is not an issue.  But while it does avoid probate, a revocable trust is subject to estate taxes.

An irrevocable trust is the opposite.  It immediately transfers your effects out of your estate and into a separate legal entity. There is no way to change your mind or use these assets because they are not yours anymore.  Benefits of an irrevocable trust is that it can avoid probate and estate taxes.

The other type of trust is called a testamentary trust.  These kind are specified in a will document and only created after the grantor has died. The funds can be subject to probate and estate taxes but can accomplish a variety of goals.

One example is a bypass or credit shelter trust which can protect your estate from taxation.  It allows the transfer of the most money allowed without being subject to taxation and then moves the rest to your spouse completely tax free, even if the estate grows.  Another example is a generation-skipping or dynasty trust.  It allows the transfer of a sizable amount of assets tax-free to beneficiaries that are at least two generations removed, such as grandchildren.

If you are interested in leaving the most assets to your heirs, then you should consider setting up a trust.  Contact an experienced estate planning attorney in DuPage County who can suggest the best trust for your given situation.