Trusts can be an effective tool to use in planning an estate. A trust can be used to manage assets upon the death of a person for the benefit of children or others, protect the privacy of the person who established the trust, protect assets from additional tax burdens and manage a person's own assets while they are still living in case they become disabled.
Trusts are not standard and may include any provision that does not conflict with state law. They can be living trusts that are used to manage a person's assets while they are still living, and they may also continue after the grantor's death. Trusts can also be established for the benefit of others, beginning after the benefactor passes away. They can include all property and assets that a person has or just a portion of those assets.
People may have revocable or irrevocable trusts. A revocable trust may be changed and ended, allowing greater flexibility to the creator, but this type does not offer many tax benefits. Revocable trusts will require the person to report income from the trust on his or her personal income taxes. Irrevocable trusts cannot be changed or terminated. While there is less flexibility, the income is not reported on a person's individual tax return, and the trust has a separate tax burden.
When looking to the future, people may benefit by considering a trust as a part of their overall estate plan. A trust may be beneficial when tax planning as it may be able to help avoid associated taxes that are associated with certain inheritances. Trusts can also be beneficial in order to help ensure certain beneficiaries will be protected. An attorney who is familiar with estate planning strategies might be able to help a client tailor a trust to fit the client's needs.
Source: American Bar Association, "Chapter 4", November 12, 2014