There are many options to consider when creating an estate plan. So much so, that all the terms can get confusing. Wills. Trusts. Powers of attorney. It’s so confusing that one study shows only 40% of people have a will or trust.
That’s an alarming number, and may be tied to the idea that trying to organize your estate is overwhelming. Getting more comfortable with some of the terms associated with estate planning can help reduce anxiety, which is why we want to explore trusts in more detail.
What is a trust?
A trust isn’t just for the wealthy. While there can be financial benefits, a trust is another tool to help give you control over estate. In simple terms, a trust allows you to put conditions on how your assets are distributed upon your death. You define the requirements for the property held in your trust, which will be distributed to your beneficiaries.
Types of trusts
There are a wide range of types of trusts to fit your specific needs. Two of the most common are revocable and irrevocable trusts. Revocable trusts allow you to retain control and can be changed or revoked. Irrevocable trusts cannot be changed. Once assets are placed in an irrevocable trust they are no longer yours.
There are many other kinds of specific trusts that could fit your needs, including:
- Asset protection trust
- Charitable trust
- Special needs trust
- Bypass trust
- Generation-skipping trust
These are just a few of the many trust variations that offer different benefits. Your own situation will dictate what will benefit you.
What‘s the difference between a trust and a will?
While trusts protect assets, they are narrower in scope than a will. A will can cover nearly everything in your estate. Trusts are more specific. For example a trust may cover a single piece of property or financial account. Trusts can be tailored depending on what you want to put in the trust and offer different financial and tax benefits than a will.
There is a lot more that goes into trusts than we discussed here, but this gives you a good starting point for understanding what trusts are and allows you to start a conversation about whether you need one.