Trusts: How Do They Fit into An Estate Plan?

Many individuals have heard of Trusts, but some may not fully understand the role they can play in one’s estate plan. There are various types of Trusts, each of which can serve a particular purpose. In general, Trusts are setup by individuals as a way of retaining some control over how assets are disposed or managed after death or incapacitation. Since Wills only go into effect after you pass away, Trusts can provide some protections while alive as well.

Before diving into common types of Trusts, it would help to clarify the general structure of a Trust:

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A Trust can be setup to address your personal nuances depending on your goals. For example, the Grantor, Trustee, and Beneficiary could all be one person (you).

Types of Trusts

Revocable Living Trusts

These can be created during your lifetime and be altered or revoked at any point while you are alive. It is generally used to avoid probate upon passing, but while you are alive you still retain control of the assets within the Trust. Any income earned by the Trust is taxable to you, but the assets themselves are not truly owned by the Trust until you pass.

Irrevocable Trusts

Unlike a Revocable Trust, you cannot make any changes once it has been established. Legally, you have removed any ownership rights once you transfer assets into this type of Trust. One of the more common uses of this type of Trust is to bypass potential estate taxes and protect assets from creditors.

Joint Trusts

As the name implies, they are setup for two individuals, commonly for spouses. They have a similar structure as a Revocable Living Trust in regards to control of assets and potential alterations. After one spouse passes away, the surviving spouse would become the new Trustee (depending on the Trust’s language).

Testamentary Trusts

This type of trust is created by a Will and only goes into effect upon your passing. Depending on the Will’s language, multiple Testamentary Trusts can be created. While these Trusts can be setup to retain some control of assets beyond your lifetime, a disadvantage of this type of Trust is that it does not avoid probate.

Conclusion

While these are some of the basic types, there are far more Trust options (beyond the scope of this blog) that can fit your goals. Trusts can be a powerful safeguard against unforeseen situations that can go against your wishes. Consulting with an estate attorney is highly recommended to evaluate whether a Trust has a role in your estate plan.

Weingarten Associates is an independent, fee-only Registered Investment Advisor in Lawrenceville, New Jersey serving Princeton, NJ as well as the Greater Mercer County/Bucks County region. We make a difference in the lives of our clients by providing them with exceptional financial planning, investment management, and tax advice.