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The Different Kinds Of Trusts: A Comprehensive Guide

Oct 26, 2023 | Estate Planning

Trusts are legal tools that are paramount to the protection of your hard-earned assets. Up until this point, you may have fallen victim to the misconception that trusts are for the rich or the elderly, but that’s simply not true. Trusts are for anyone who has assets. Unfortunately, even if they know that, many people still put it off for another time; however, tomorrow is never guaranteed, so having a plan for your assets is the best way to ensure that the things and the people that matter most are shielded from the possibility of probate and other legal complications. 

Probate is a California court process that occurs when a decedent doesn’t have a will at the time of their death. Sometimes probate is still necessary even when the decedent has a will. Probate can be a stressful, expensive, and time-consuming process; it’s  something your family likely won’t have the time, resources, or energy for in the event of your passing. A trust will eliminate the need for probate, saving your loved ones money and stress during an already difficult time. 

Though you might be overwhelmed by the steps of creating a trust, it’s crucial if you want your assets to end up in the right hands if you pass away or become incapacitated. Trusts cannot be standardized with a one-size-fits-all template, as each person’s situation and needs for a trust are unique. A skilled trusts lawyer can help you decipher which type of trust is best suited for your circumstances. 

Revocable Trusts Vs. Irrevocable Trusts

Before diving into the various types of trusts, it’s important to understand the difference between revocable and irrevocable trusts. 

A revocable trust is an estate planning tool that allows you to leave property when you pass away, and it can be managed throughout your lifetime. This means that you can update, change, or revoke the terms of your trust, offering you the advantage of flexibility. 

An irrevocable trust cannot be revoked or terminated once it’s been created. This offers an added layer of protection to your assets, but unfortunately is not as flexible as a revocable trust. 

Charitable Trust

A charitable trust is a legal tool that is its own separate entity from you. It allows you to donate assets to a tax-exempt charity organization, which in turn can help you reduce what you might owe to the government. It distributes assets to charities based on your instructions both during your life and after. 

There are also two specific types of charitable trusts: remainder trusts and lead trusts. A charitable remainder trust is an irrevocable trust that generates income for you or other beneficiaries. A charitable lead trust is also ‚Äč‚Äčirrevocable and is made to provide financial support to one or more charities for a certain period of time, with the remaining assets eventually going to other beneficiaries

Special Needs Trust

A special needs trust (SNT) is a trust that protects someone with special need’s eligibility for public benefits like Social Security or Medicare. Because they don’t own the assets held within the trust, they can still qualify to continue receiving their benefits in the event that their parent or legal guardian passes away or becomes incapacitated.

There are two different types of SNTs: a first-party SNT and a third-party SNT. A first-party special needs trust is funded with assets that already belonged to the individual with special needs. A third-party special needs trust is funded by someone other than the beneficiary, typically a parent. Most of the funding comes from gifts or an inheritance. 

Asset Protection Trust

Even if you aren’t a wealthy individual, if you have valuable assets, an asset protection trust can be a beneficial tool.  Asset protection trusts shield earned assets from potential threats like lawsuits, creditors, or bankruptcy. They can also help prevent expensive litigation before it even begins. By implementing an asset protection trust, you can be sure that the wealth you’ve acquired is passed onto your intended beneficiaries and not tied up in court. 

Joint Trust

A joint trust is a trust that is shared between two people (typically a married couple). Both parties are usually able to make adjustments to the trust while they are both living and if one party dies, the other automatically assumes control of the trust. 

Testamentary Trust

A testamentary trust is created as part of a last will and testament and details instructions for how a decedent’s assets should be managed and distributed in the event of their passing. It can also be used to manage charitable donations as well. 

And more!

Do I Need A Lawyer To Create A Trust?

Many are overwhelmed by the idea of taking time out of their busy lives to create a trust, which is why free, online estate planning templates are tempting to take advantage of. However, it’s important to seek professional help from an experienced trust lawyer in order to fully reap the benefits of this legal tool. While creating a trust from the comfort of your home may seem convenient, these templates often lack the legal language required to make your trust valid, which can lead to costly mistakes down the road. A trust lawyer can help you avoid mistakes, explain your options, and customize the trust to your specific needs. 

How Equal Justice Law Group Can Help You

At the Equal Justice Law Group, we strive to alleviate the burden of estate planning by guiding you through each step of the process. If you want to shield your assets from the potential of probate and save your loved ones a huge headache, call today to schedule a consultation. We will take the time to get to know you so we can understand your financial situation and help you choose a trust that will ensure your wishes are clearly outlined so your assets are safe, and your family is taken care of. Take the first step by contacting the Equal Justice Law Group today!

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