Planning your legacy is no small feat, especially when you have children. Parents often want to leave behind something their kids can benefit from, whether that comes in the form of money, property or guidance. And deciding how to do this can be confusing.
For instance, you might decide that you want to set up a trust for your child. However, there is not just one type of trust.
Types of trusts
In general, trusts establish a fiduciary relationship between a trustee, who manages the property in the trust, and the beneficiary. However, the details of that relationship and the requirements of setting up the trust and making payments depend on the type of trust you establish.
First, know that there are two categories of trusts:
- Revocable trusts: These are trusts that you (the trustmaker) can change, dissolve and otherwise control during your lifetime. A primary benefit of a revocable trust is its flexibility.
- Irrevocable trusts: These are trusts that you (the “Settlor” or “Grantor”) can change, dissolve and otherwise control during your lifetime. A primary benefit of a revocable trust is its flexibility.
Within these categories are specific types of trusts, including:
- Charitable trusts, which allow you to set aside property especially for a charitable organization and take advantage of tax incentives
- Special needs trusts, which provides payments to a child with special needs in a way that does not affect eligibility for government benefits
- Generation-skipping trusts, which allows you to bypass your children as beneficiaries and instead names your grandchildren as beneficiaries
- Spendthrift trusts, which allows a trustee to distribute payments incrementally rather than in a lump sum
Which one is best for your child?
To determine which type of trust may be best for your child and estate planning goals, you should think about a few critical factors. Is your child (or another beneficiary) responsible with money? What are your plans for the trust? Are there undesirable parties who could have a claim to a trust that you want to block?
A trust can be a wise, strategic decision for several reasons, but you must consider which type of trust meets your needs and are most beneficial for your child. You can discuss your options in more detail with one of our attorneys at The Quinn Law Firm by calling 814-806-2518.