A trust is an essential legal document in an estate plan used to transfer assets and protect an estate from taxes, probate and disputes. A trust is set up by arrangement between a grantor and a trustee. The grantor can set the terms of a trust, which is followed by the trustee. The trustee is responsible for managing the grantor’s assets during or after their life.
Grantors have several types of trusts they can use to transfer assets to beneficiaries. Here are a few to consider:
1. Revocable trust
A revocable trust is one of the most common types of legal documents used to secure people’s legacies. This kind of trust allows the grantor to alter the contents or directions of the trust at any time during their life. Once the grantor passes away, the revocable trust becomes irrevocable and typically cannot be changed.
2. Spendthrift trust
A beneficiary may have difficulties saving or investing their money. A grantor can help protect their estate from being mismanaged by a beneficiary with the use of a spendthrift trust. This kind of trust can limit how much a beneficiary can spend from a trust.
3. Incentive trust
A grantor can set up an incentive trust to reward beneficiaries for completing goals. For example, a beneficiary could receive funds from an incentive trust only after they receive a college degree. Assets could also be distributed each semester relative to a beneficiary’s grade point average (GPA) to help fund their education and encourage higher marks.
Legal guidance can help people explore their trust options when making an estate plan.