Creating an estate plan is a way to pass on your legacy. When you create a trust, it can be another way to transfer your assets to your loved ones.
There are many types of trusts. While some transfer your assets after you pass away, others shelter your assets while you are alive with instructions for the future.
Here’s what you should know about what you can accomplish with a trust.
Types of trusts
There are a few main types of trusts. While there are a few different categories within the main types of trusts, most trusts fall into the following types:
- Living trusts. These operate while you are alive and can (but does not have to) continue after your death.
- Testamentary trusts. These trusts do not start until you pass away and continue until there are no more assets in the trust.
- Spendthrift trusts. These special needs trusts support your ability to receive Medicaid or limit a loved one’s access to assets if they are not a competent money manager.
In general, a trust can be revocable or irrevocable. While it is more difficult to revoke an irrevocable trust, some exceptions allow revocation.
Protecting your assets
One of the primary functions of a trust is to protect your assets. In addition to protecting your assets from other friends and family who could try to manipulate your estate plan, a trust can protect your assets from creditors.
While many debts will die with you, others could become debts your estate must pay. When your assets are in a trust, it can shield the assets from creditors and allow the asset to go to the person you intended.