A trust gives a trustee the right to hold the title to property or assets for beneficiaries. The three most common types of trusts are revocable trusts, irrevocable trusts, and testamentary trusts. Depending on what your situation is, there may be one better suited for you.
Read about the three most common trusts below:
- Revocable Trusts
- Irrevocable Trusts
- Testamentary Trusts
1. Revocable Trusts
A revocable trust (also known as a living trust) is used when you want to avoid probate (a lengthy legal process of proving your will).
A revocable trust is a great option if you own property in multiple states. If your property or assets are owned inside of a revocable trust, you will most likely be able to avoid probate in the state you live. Without probate, the process of administering your estate is quicker and less costly.
2. Irrevocable Trusts
In an irrevocable trust, the assets can’t be removed or amended after they’ve been placed in the trust. Once you give up control of assets placed in an irrevocable trust, the trust is now the owner of the assets. Since the assets are no longer yours, they do not have an effect on your wealth, the value of your estate, or your tax liability.
3. Testamentary Trusts
In contrast to the revocable and irrevocable trust, a testamentary trust is not effective right away. Instead of creating and funding a trust immediately, testamentary trusts do not go into effect until your death. A testamentary trust is created through a will, and its terms are laid out within the will set forth.
Testamentary trusts are often used if you would like to create a trust for minor children. Even though assets in a testamentary trust may be subject to probate, the flexibility of this type of trust when assigning a trustee may outweigh its costs.
Related Article: Who Should Be Your Trustee?
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