Controlling how your assets are distributed and managed after you pass away is one of the benefits of a trust. Certain types of trusts can protect an estate from disputes, estate taxes and probate.
You may have read about the different types of trusts you can add to your estate plan, such as incentive trusts, charitable trusts and special-needs trusts. However, you may want to learn about three more trusts that could protect your legacy:
1. Spendthrift trust
One of the dangers of giving a beneficiary free rein of trust funds is that they could poorly invest their inheritance or develop a spending problem. To help ensure a beneficiary does not waste away their trust funds, you could limit their spending with a spendthrift trust. A spendthrift trust can restrict access to trust funds by, for example, giving a beneficiary access to the interest earned with trust funds instead of the principal amount of funds. Enforcing this limit could encourage a beneficiary to budget their inheritance.
2. Generation-skipping trust
You may want your legacy to continue on to your grandchildren. You could draft a generation-skipping trust that allows you to pass on your legacy to anyone at least 37.5 years younger than you. This means trust funds could be preserved and protected from estate taxes for two or more generations. You could create a generation-skipping trust alongside another trust so that your children could still access some trust funds.
3. Payable-on-death trust
Probate can create a lot of issues for beneficiaries, such as prolonging the grieving process and creating financial difficulties for families. If you want to avoid probate for your family, you may consider making a payable-on-death trust. These can transfer bank accounts directly to a beneficiary, avoiding probate.
Learning more about the types of trusts you can add to your estate plan can give you peace of mind. Legal guidance can help you along your estate planning process.