When drafting an estate plan, it is important to consider asset protection. After you pass away, your estate value could be reduced because of estate taxes and debt collectors. However, you can protect the value of your estate by creating a trust.
A trust is a legal document that helps ensure your beneficiaries receive the full amount of their inheritance. Assets placed in a trust are managed by a trustee, who is responsible for distributing trust funds to beneficiaries.
There are several different types of trusts that can do more than protect your estate. Here is what you should know:
1. Revocable trust
A revocable trust is one of the most common trust options. This trust allows you to place funds in the trust to protect assets from debt collectors and estate taxes. You can alter a revocable trust at any time. When you pass away, the revocable trust becomes irrevocable, preventing changes and protecting trust funds.
2. Spendthrift trust
A spendthrift trust allows you to prevent trust funds from being wasted on poor investment opportunities. You can use a spendthrift trust to limit access to trust funds. This can prevent a beneficiary from spending the entire value of the trust on frivolous expenses.
3. Charitable trust
A charitable trust allows you to fund a charitable organization. Trust funds in a charitable trust can be distributed to charities, private organizations and research programs, for example. Charities can receive a portion of the trust’s value at regular intervals, allowing the charity to continue operations for years to come.
If you are not sure if a trust is right for your estate plan, you can reach out for legal guidance to learn about your options.