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Types of Trusts: Which One is Right for You?
October 1st, 2024
A comprehensive estate plan involves much more than drafting a last will and testament. Trusts are crucial estate planning tools that can be used to provide for your family, avoid probate, plan for incapacity, and protect your assets for future generations. There are many different types of trusts that can be used in Oregon, depending on your specific goals.
What is a Trust?
A trust is a legal arrangement between three parties: the grantor, the trustee, and the beneficiary. The grantor creates the trust based on their wishes and objectives. The trustee is the party who is responsible for managing the property in the trust on behalf of the beneficiary, who will receive the assets in accordance with the instructions provided in the trust. Once the trust instrument is drafted, the trust will need to be funded in order to be effective. A trust can be funded with a wide variety of assets, including bank accounts, real estate, life insurance, personal property, and investment accounts. The assets must be properly transferred into the trust by changing the titles from your name to the name of the trust.What is the Difference Between a Revocable and Irrevocable Trust?
The types of trusts that can be created in Oregon fall into two basic categories. They can be either revocable or irrevocable. The main difference between these two types of trust is the grantor’s ability to make changes after the trust has been set up. A revocable trust can be modified or altered at any time — a grantor may freely add or remove beneficiaries, sell trust property, and remove assets. In contrast, an irrevocable trust cannot be changed or terminated easily. Modifying the terms of an irrevocable trust requires the consent of all beneficiaries and court approval. Each type of trust has its own pros and cons which must be considered, depending on your objectives. Irrevocable trusts offer protection from creditors and tax benefits, while revocable trusts do not. However, revocable trusts offer flexibility and can allow you to have more control over your assetsWhat Types of Trusts Can Be Used in Estate Planning?
Trusts aren’t just for the wealthy — they are for anyone who wants to ensure their assets are protected and distributed the way they wish. There are a wide range of trusts that can be created in Oregon, and each type of trust has its own benefits. While some trusts do not become effective until after your passing, others can help ensure your assets are managed properly if you become incapacitated during your lifetime. Trusts can also be created to provide for charity, safeguard your wealth from creditors, pass your assets to beneficiaries without substantial estate tax implications, and provide for a loved one with a disability without jeopardizing their government benefits. Specifically, some of the types of trusts that can be used in estate planning include the following:- Testamentary trusts — A testamentary trust is a type of trust that is created by a last will and testament and becomes effective following the grantor’s death. The terms of the trust are outlined in the will, which includes instructions for how the property in the trust should be managed and when they should be distributed to the beneficiaries.
- Revocable living trust — A revocable living trust is a tool that can be used for incapacity planning. It allows the grantor to maintain control over the assets until a named successor trustee takes over in the event of incapacity or death.
- Life insurance trusts — A life insurance trust is created when an individual transfers ownership of a life insurance policy into a trust. When the insured passes away, the funds in the trust are distributed to the beneficiaries according to the terms of the trust.
- Special needs trusts — A special needs trust allows the grantor to provide assets to help enhance the quality of life of a loved one with a disability, without affecting their eligibility for public benefits.
- Charitable trust — A charitable trust allows the grantor to donate assets to a charity of their choice.
- Asset protection trusts — An asset protection trust can be used to safeguard assets from creditors, lawsuits, and judgements. These are typically used by individuals in high-risk professions.
- Marital deduction trusts — A marital deduction trust allows a married couple to transfer assets to each other without incurring federal estate or gift taxes.
- Bypass trusts — Also referred to as a “credit shelter trust,” a bypass trust can be used to help a married couple maximize their estate tax exemptions.
Contact an Experienced Oregon Estate Planning Attorney
Trusts can be legally complex. It’s vital to have counsel by your side who can discuss your options regarding the different types of trusts available and help you determine which one is right for you. Based in Salem, Litowich Law provides clients throughout Oregon with dedicated counsel for a wide range of estate planning matters, including creating trusts. We welcome you to contact us to schedule a consultation to learn how we can help.Categories: Estate Planning