When working with families to create an estate strategy, one of the most frequent questions we hear is “should we add a trust to our approach?”
And while the answer can be “yes” in some situations, the most important takeaway is that there are many types of trusts. Learning about the features, benefits, and limitations of trusts can help a family decide what might be a good fit as they move down the path of estate management.
Honor God with Your Approach
“You’ve worked a lifetime. You’ve been a good steward. Allow God to be honored through your estate plan,” wrote Mick Owens in his popular book Diamond of Life: The Five P’s of Success and Significance.
Mick explained that when you place your assets in a trust, they are shielded from the probate court, which is an important consideration for some. And a trust allows you to distribute your assets to beneficiaries in any manner that fits your needs, which is a critical driver for others.
Here’s a quick look at two of the most common types of trusts. While they are similar, they have subtle differences. That’s why when considering adding a trust to your financial strategy, we encourage people to work with a legal professional who is familiar with the rules and regulations.
A Family Trust1
A family trust is a type of living trust. It can be revocable or irrevocable depending on the estate goals you are pursuing. Family trusts are structured to help manage the assets you place in the trust for your beneficiaries. A family trust can be designed to reward beneficiaries for certain milestones, such as graduating from a trade school or college. It can also be set up to help children with special needs.
A Living Trust1
A living trust can also be revocable or irrevocable. “With a revocable trust, you can amend or revoke this trust at any time,” explained Mick. Once the trust is set up, assets are transferred in and distributed according to your wishes. The trust owner can choose to retain control, or transfer control to a third party. With a living trust, you can leave your estate to family members as well as charities, foundations, and others.
Key Differences1
While both offer protection for your assets, there are a few subtle differences between them:
Beneficiaries: Typically, a family trust is designed to work for the family members of the grantor. A living trust, however, can be distributed to family as well as charities, alma maters, and others.
Distribution of assets: At the highest level, a family trust is designed to continue beyond the grantor’s life. That’s one reason it’s an option when caring for a child with special needs.
You might be thinking, “It sounds like either may work for our family.” While that may be true, it’s important to understand that there are key differences that should be explored. As we guide clients through the legal process of setting up a trust, we want to help select an estate strategy that is a good fit for their family situation.
- SmartAssets.com, November 16, 2022
