Estate planning can be done in various ways, including creating a will, power of attorney, and trust. A will can be used to name a legal heir and help distribute assets, while a trust transfers the ownership of your assets, investments, and business to a beneficiary of your choice.

Also Read: What Is Succession Planning And Why Is It Important?

A trust is a legal arrangement that allows a trustee to manage assets on behalf of the beneficiaries. Its purpose is to distribute assets after the original owner’s death according to their wishes. The grantor, or settler, creates a trust by transferring assets like cash, real estate, investments, or personal property. Then, the trustee, appointed by the grantor, manages the trust’s assets according to the terms of the trust documents, which align with the interests of the beneficiaries. The trust document outlines the terms and conditions of the trust, including asset management and distribution, the trustee’s powers, and the beneficiaries’ rights.

Here are the types of trusts employed in estate planning:

Revocable Trust: A revocable trust can be rewritten or revoked if the grantor wishes. It provides flexibility as it can be modified, and the grantor can change the trustee if someone worthier or more responsible comes along. A revocable trust is only revocable until the grantor is alive; if the grantor passes away, it becomes unchangeable. This type of trust may, however, put your assets in danger in case of bankruptcy, where a creditor can gain access to the trust by providing a court order.

Irrevocable Trust: Irrevocable trusts are unchangeable, and the grantor must relinquish control of the assets placed under the trust to the trustee. They can be challenged in a court of law and can only be modified if all the beneficiaries agree. They are usually triggered by the grantor’s death, leaving no room for change.

Also Read: What Happens To Your Property If You Die Intestate?

Asset Protection Trust: In a revocable trust, a creditor can take control of your assets. However, an asset protection trust helps you avoid this danger by making it off-limits for any creditor to gain access to the assets named under the trust. These assets are sealed for a specific period. On the termination of this period, the grantor gets his/her assets back safely.

Charitable Trust: As the name suggests, this trust is made for charity and partly for tax benefits. Anyone who owns high-value assets can move them to a trust, which helps them save taxes on their income. While it enables you to save taxes, a pre-determined portion of the revenue goes to the charity.