Trusts are not only for the extremely wealthy. According to CNN Money, there are many types of trusts used for estate planning purposes.
Choosing the best type for your estate planning needs entails having knowledge on how each operates and what they offer estate planners. Here are a few common forms of trusts to get you started.
Upon the creation of an irrevocable trust, you cannot change it. That is because the assets in the trust are not owned by you. Instead, the trust owns them, and subsequently, your heirs. This also offers a tax benefit, since you cannot tax a person for assets they do not own.
On the other hand, you can change the terms of a revocable trust during the course of your lifetime. While this allows you to retain control over your assets, you are responsible for taxes on those assets.
Credit shelter trusts
For people with very valuable estates, credit shelter trusts help them avoid estate taxes. You fund the trust with assets up to the point of the estate tax exemption. The remainder is then passed to your surviving spouse tax-free.
Qualified terminable interest property trusts
These trusts benefit people with heavily blended families where there are lots of divorces and new marriages. Upon your death, your surviving spouse receives recurring funds from the trust as a form of income. Upon the death of your spouse, the heirs you list within the trust will receive the remainder of the funds.
Generation-skipping trusts often target grandchildren. In this case, you can provide a large amount of money to heirs two generations removed from you without any concerns about taxes.
Many estate planners combine wills and trusts to have greater control over their assets. Because they allow you to put stipulations on inheritances, they can benefit you as well as your heirs.