Trusts are a great option for you to control your assets, bypass probate, and distribute inheritance to beneficiaries. When you decide to create one for your future, you may wonder what type of trust is best suited for your needs. There are four basic types of trusts that you can create: living, testamentary, revocable, and irrevocable trusts. There are subcategories that may fit your needs, such as special needs trusts. Learn more about the basic types of trusts and what makes them different.
Living Trusts
A living trust is a trust that is created while the trustor (the creator of the trust) is still alive. The trust cannot be changed after the trustor passes away. Living trusts are commonly used to distribute assets to beneficiaries. This type of trust bypasses probate, meaning the trust does not typically have to be taken to court. Often a living trust avoids stress, and saves time, and legal and court fees.
Testamentary Trusts
Testamentary trusts are trusts that are set up after death and adhere to the last will and testament of the creator. This means that the terms of a testamentary trust are already established; however, the trust can be altered at any time until the creator’s death. Compared to a living trust, a testamentary trust is more flexible than a living trust.
Related Article: Does a Living Trust Go Through Probate?
Revocable Trusts
The next two trusts are called revocable and irrevocable. A revocable trust is one that can be changed while you are still living. Folks may choose a revocable trust because of its flexibility and provides privacy for assets. In a revocable trust, beneficiaries can avoid probate. Assets are distributed to beneficiaries after the trustor passes away.
Irrevocable Trusts
An irrevocable trust is a type of trust where terms cannot be changed after the trust is established. When you choose an irrevocable trust for your circumstances, you may find it favorable because it reduces estate taxes and protects assets. If an irrevocable trust needs to be amended or modified, it can be a complicated process. All beneficiaries must give permission before any changes take place.
Related Article: How to Set Up a Living Trust in California
Trust Accounting in California
You now have a basic idea of what type of trusts you might come across. After a trust is set up in California, know that trustees will usually be required to do trust accounting each year. You may also need certain documents for trust accounting.
If you need help, please contact us by filling out our Contact Form or by giving our office a call at +1(951)686-3608.
Marcia L. Campbell is the most experienced CPA in the Inland Empire who specializes elder & financial care, court & trust accountings, as well as private fiduciary and tax services.