“Trust” is a blanket term for the legal tool that allows individuals to transfer assets to a beneficiary and be managed by a trustee. Did you know there are several types of trusts, each with its own unique benefits (and requirements)? What are the 3 main types of trusts?
Also known as a living trust, a revocable trust can be changed, or even revoked, by the grantor (creator) at any time during the grantor’s life. The grantor maintains control over the assets they put in the revocable trust, meaning they can add or remove assets at any time during the trust’s existence. A living trust also gives the grantor power to modify the terms of the trust or dissolve it altogether should they feel so inclined. Advantages of revocable trusts include the possible avoidance of probate and increased privacy.
As the name suggests, an irrevocable trust differs from a revocable trust in that it cannot be changed or revoked after its creation. By creating an irrevocable trust, the grantor gives up control over the assets in the trust, instead placing them under the management of a designated trustee. To some this may sound extreme, but the financial benefits of an irrevocable trust can be worthwhile. Irrevocable trusts may provide significant tax benefits to both the grantor and their beneficiaries, while possibly protecting the assets in the trust from creditors.
A testamentary trust is a bit different from other trusts in that it does not exist during the grantor’s lifetime. Rather, it is created through a directive to do so in a will or revocable trust and only takes effect after the grantor’s death. Testamentary trusts are often used to create a trust for minor children who are incapable of managing their own affairs. A testamentary trust can outline specific parameters or termination events for the trust, such as distributions upon certain milestones in a beneficiary’s life.
Call Brown Law Firm, LLC at (303) 339-3750 to speak with an estate planning attorney about what trusts may be right for you.