In past weeks, we've talked about why you might want to consider having a trust and the benefits that can come from including a trust in estate planning. Once you decide that a trust is right for you, you might have to work with your legal representative to decide which type of trust is going to deliver the benefits you want.
We've previously covered the difference between an irrevocable and revocable trust, but there are further breakdowns of trust types. Some trusts, such as a marital trust, are used to help pass assets to a spouse but don't provide much in the way of a shelter. Other trusts, such as the bypass trust, do provide some shelter against federal estate tax and creditors.
You might also consider a charitable trust, which lets you put assets away for use by a charity. A charitable lead trust lets you designate which assets go to charity, and the remaining assets go to your beneficiaries such as children or a surviving spouse.
In some cases, you might want assets to go directly to grandchildren, but simply leaving them assets in a will could mean that those assets are subject to additional federal estate taxes upon the death of your children. A generation-skipping trust lets you direct assets to grandchildren or great-grandchildren without worrying about such issues.
Choosing the right type of trust is important because it can make a big difference in how the trust is administered. Working with a lawyer through the entire estate-planning and administration process can help you and your family avoid costly mistakes such as choosing a trust type that doesn't provide the benefits you need.
Source: Fidelity, "What Is a Trust?," accessed May 13, 2016