What’s the Difference Between a Family Trust and a Living Trust?
ou may know that a trust can protect your assets. But did you know there are many types of trusts? Finding the right one for your unique individual circumstances could save your heirs from hassle and even keep them from paying out more on taxes.
Not every trust is applicable to everyone’s financial or life situation, but two types of trusts may offer the most advantages. Learn more about the difference between a family trust and a living trust and the upsides of each kind.
The Benefits of Setting up a Trust
First, you may wonder why you should pick a trust over other choices. Estates placed in a trust won’t head to probate, which can be expensive. When you put assets in a trust, your heirs may also see decreases in gift and estate taxes. Plus, you can divide up your assets any way you prefer while also protecting them from lawsuits and creditors.
Why Choose a Family Trust?
A family trust is essentially any type of trust you set up to benefit your family members. They are actually a type of living trust, but not every living trust is also a family trust.
You can choose to make your family trust revocable, which means you can transfer your assets into the trust at any point, but you can also amend what is there or revoke the trust while you are still alive. Family trusts can also be irrevocable, so you can’t change or cancel the document after you have signed it; there are no take-backs. Revocable trusts become irrevocable after you die.
What are the advantages of a family trust? People choose this estate planning option because:
· They offer flexibility.
· You can set them up to distribute on any schedule you like, such as when heirs hit a life milestone like having a baby or attending college.
· A family member with special needs can receive necessary care costs from a trust while still being eligible for Medicaid.
Why Choose a Living Trust?
A living trust lets your beneficiaries bypass probate court and allows you to transfer assets to a trustee easily. They will inherit what goes into the trust, and you can structure them so you can revoke or modify any of the provisions while you are alive.
One of the biggest draws of a living trust is avoiding fights over your estate. Heirs will find it difficult to contest your estate plan when using a living trust. You can designate a successor trustee, whose job is to follow your distribution preferences. Other benefits of a living trust include:
· No probate fees for your heirs.
· Ability to leave your assets to anyone, including family as well as charities, foundations, schools or even, yes, pets.
· Exceptional flexibility and control over what you leave behind.
It can be difficult to think about estate planning, but taking care of it now can eliminate headaches for your loved ones when you are gone. Jay can recommend resources for this critical exercise. Contact him today to learn more.