Trusts are an important part of many estate plans, as they can protect and preserve wealth for younger generations and direct the grantor’s wishes when they cannot express those wishes themselves. If you’re planning your estate in Chicago, knowing about the different types of trusts and how they work can help you make informed decisions for the future.
What is a Trust for Estate Planning?
A trust is a legal document into which a “grantor” places assets that a “trustee” controls on behalf of “beneficiaries.” The trustee should be someone the grantor can rely on to carry out their wishes, as they will manage the trust according to the terms established in the document. This may involve distributing assets to beneficiaries of the trust.
When beneficiaries receive inheritances left to them in a will, they must first go through the lengthy probate process. A trust bypasses probate. Thus, it may allow beneficiaries to receive their inheritances sooner than they otherwise would. In addition, the distribution of assets doesn’t involve a court, which means it won’t become a matter of public record. Furthermore, some trusts are not considered part of the grantor’s estate. As such, they are not subject to estate taxes.
Different Types of Trusts for Estate Planning in Chicago
Familiarizing yourself with the different types of trust for estate planning can help you better determine which option may be ideal for your needs. The two basic types of trust for estate planning are:
- Revocable trusts – With a revocable trust, the grantor may still maintain control over the assets in the trust during their lifetime. They have the flexibility to modify its terms or revoke the trust completely. A revocable trust is similar to a will in this manner. However, it still offers many of the benefits of a trust, like skipping probate.
- Irrevocable trusts – An irrevocable trust is one in which the grantor doesn’t have control over the assets in the trust. Once they establish the trust, they can no longer adjust its terms. What the grantor loses in flexibility, they make up for with added protections. Because the assets are not theirs to control, they cannot be seized by creditors, and they are not subject to estate taxes.
Other Types of Trusts for Estate Planning in Chicago
Within the two basic types of trusts are more specialized options designed for specific purposes. Options to consider include:
- Marital trust – A spouse takes control of the assets in a marital trust when the spouse who established the trust dies. A type of irrevocable trust, a marital trust can help a surviving spouse avoid estate taxes on these assets during their lifetime.
- Life insurance trust – Life insurance trusts in estate planning are set aside specifically for the proceeds of life insurance policies. When a grantor establishes a life insurance trust, they name the trust as their life insurance policy’s beneficiary. A life insurance trust can be either revocable or irrevocable, with each option having its own pros and cons.
- Charitable trust – A charitable trust is a type of irrevocable trust in which a grantor sets aside assets for charities. With a “charitable lead” trust, you can designate a portion of the assets for certain charities, with your beneficiaries receiving the rest of the assets upon your passing. With a “charitable remainder” trust, you may keep receiving some income from the assets in the trust for a set period. Once that period ends, whatever remains in the trust goes to charities of your choosing.
There are many other options to be aware of. Spendthrift trusts help when a beneficiary can’t be trusted to manage assets responsibly. Special needs trusts can help loved ones qualify for government assistance while still receiving financial help from a trust. Speak with an estate planning professional to learn more about the best option for you.
Contact a Chicago, Illinois, Estate Planning Lawyer
You’ve spent a lifetime building a legacy. You want to know that you’ll be able to pass it down to future generations according to your wishes. A trust or several trusts can help you achieve this goal, and deciding what types to set up is easier with help from a Chicago estate planning lawyer.
At Peck Ritchey, LLC, we’ll work closely with you align your estate plans with your long-term vision. We can advise you on the types of trusts that will most benefit your situation and can establish them on your behalf. Learn more by contacting us online today or calling us at (855) 328-5787.