Although trusts are often perceived as only for the wealthy, they can be helpful estate planning tools for people at all income levels. When considering estate planning possibilities, individuals should consider the different types of trusts that are available. Options include revocable and irrevocable trusts, credit sheltering trusts and generation-skipping trusts.
An irrevocable trust cannot be changed or canceled without the consent of the testator and beneficiary. While an individual may no longer control the assets, the trust will be protected against creditors and other legal claims. On the other hand, revocable trusts can be changed or altered at any time. Furthermore, the individual who created the trust may also be the trustee, which gives him or her complete control over fund distribution.
Credit shelter trusts may be beneficial for married couples with assets worth more than the $5.45 million exemption for estate taxes. In such a scenario, assets are transferred to their beneficiaries when one spouse passes on. However, the other spouse keeps the rights to those assets until he or she dies even though they don't count for estate tax purposes.
Generation-skipping trusts are ideal for those who are looking to reduce their estate tax or keep a child from gaining control of an asset. Usually, such trusts are set up to avoid a large inheritance tax that may apply if assets were given directly to a child after a parent's death.
Those who are interested in preserving their legacy or avoiding estate taxes may want to talk with an attorney. A lawyer may discuss a number of trusts that may help with estate planning. If structured properly, trusts may help multiple generations benefit from wealth.