You know that injuries, disease or aging could lead to a disability. You may become mentally incapacitated. For instance, those who get diagnosed with Alzheimer's may slowly see their mental abilities decline, even when in good physical health.
You have a lot of terms to sort through if you're thinking about creating a trust as part of your estate plan. You can use revocable trusts, irrevocable trusts, special needs trusts and much more. One term you may have heard is an express trust. What is this and when would you use it?
You set up a trust to transfer your assets on to your children when you pass away. You put some of your assets into the trust at the time. However, you do not pass away for another 10 years. In that time, you gain more assets that you forget to add to the trust. You never update it. Now, what happens to those assets?
Done the right way, a trust fund can give your heirs advantages in nearly every area of life. If you have substantial assets to leave them, they may even be able to pass some on to the next generation. You can use your wealth to define their lives and help them avoid common pitfalls that their peers face.
When parents set up trusts for their children, one reason they often cite is that they do not want the child to get all of the money too early. While the child may technically be an adult at age 18, for instance, they cannot imagine giving a high school senior or a college freshman all of the money they have saved up over the course of their lives.
Living trusts are an excellent tool to deal with assets during a person's lifetime. The documents and the financial instruments they create can also give peace of mind to the people writing them with their lawyers.
If you have an heir with special needs, you may consider setting up a special needs trust to help take care of them after you pass away. However, you may also wonder why you couldn't just leave the money directly to them. Why put it in a trust first?
You can put a lot of different assets into a trust. People often consider simply putting in financial assets, but you can also add real estate and things of this nature.
You want to set up a trust to control your life insurance. You know that the irrevocable life insurance trust (ILIT) can help with your estate taxes, and you have a substantial policy to consider. You think a trust is the best way to pass that asset on to your children.
An incentive trust is, in many ways, quite a simple idea. You want to give your heirs an incentive to live a certain way, so you put their inheritance in a trust and they only get it if they follow the rules you set. For most parents and grandparents, they just want the heirs to have a productive life with gainful employment, rather than living off of the money. The incentive, then, can be that they only get the money if they're employed or that the trust pays out the same amount that they earn every year, giving them incentive to work harder and move forward in their career.