A will is the most common legal document that testators make in their estate plans. This document helps instruct how an estate is handled after the testator’s passing. Typically, a will nominates an executor or personal representative of the estate, and lists beneficiaries and what will they receive from the estate.
While a will may serve its purpose, it does have flaws. A will is susceptible to probate, which may delay the distribution of the estate. Beneficiaries may also have fewer assets than expected because of estate or inheritance taxes. And, a dispute could cause beneficiaries to lose their inheritance.
Alternatively, people can make trusts. A trust is a legal document that allows a grantor to give assets to a trustee to hold until instructed. Grantors can make revocable trusts that can be easily altered, which become irrevocable after the grantor’s passing. However, there are many other kinds of trusts. Here’s what you should know:
3 more kinds of trust funds
While a revocable trust may be the easiest option for grantors, grantors may find other kinds of trusts useful. Here are several alternative trusts that grantors can make:
- Charitable trust: A grantor who wishes to donate to a charity or private organization may make a charitable trust. Assets in a charitable trust could be distributed as a one-time donation or dispersed over the course of several years depending on what the grantor wishes to do. There may be tax benefits when using a charitable trust.
- Generation-skipping trust: Many grantors have grandchildren they wish to support. A generation-skipping trust can skip over one or two generations. This trust could also have instructions that prevent assets from being used for anything other than higher education, for example.
- Pet trust: A pet could be left behind after the grantor’s passing. The grantor could be proactive to their pet’s needs by creating a pet trust. Funds in a pet trust could be designated to be used for the pet’s grooming, vet appointments and food, for instance.
When creating an estate plan, it’s crucial to reach out to an attorney to understand your legal options and the tax implications of your choices. Talking to an attorney who practices estate planning can help during this process.