Should you add a trust to your estate plan?
Although a will is an important piece of an estate plan, a trust could be beneficial for you as well. Contrary to what you might believe, trusts are not only for people with significant assets or income.
Before you decide if setting up a trust is right for you, it is helpful to know what a trust is and some common types of trusts.
In some ways, a trust is like a will. You place assets in a trust and set up beneficiaries to receive the asset.
Benefits of a trust
A trust has several advantages, such as allowing you to transfer assets while avoiding probate. A trust can also help you potentially avoid certain taxes.
Trusts can be revocable or irrevocable. When you set up a trust, you assign a trustee to manage the assets you place into the trust.
A revocable trust allows you to take the assets back from the trustee or change the terms of the trust if you wish. You give up this right with an irrevocable trust. Once an irrevocable trust is established, you generally cannot modify the terms or change the trustee.
While there are many different types of trusts available, some common trusts include marital trusts, charitable trusts and spendthrift trusts.
Marital and charitable trusts
A marital trust allows spouses to place assets into a trust. If one spouse passes away, the assets transfer to the surviving spouse. The surviving spouse does not pay taxes on the assets.
A charitable trust may be a good idea if you have a specific charity you support. The assets you place into a charitable trust go to the charity when you pass away.
You can distribute your assets among different charities if you want or only transfer certain assets to a charity, with the remainder going to your heirs.
Spendthrift trust
A spendthrift trust allows you to place rules on how your assets are used by your beneficiaries. This type of trust could be a good idea if you are concerned with how your beneficiaries will use your assets.
The right type of trust depends on your specific situation. Trusts are often a valuable addition to a Pennsylvania estate plan.
