When planning for the future, one of the best ways to ensure your loved ones are taken care of is by setting up a trust. But with all the different types of trusts, it can be difficult to know which one is right for you. Whether you’re hoping to protect your assets, make sure your kids are provided for, or leave a charitable gift, understanding the different types of trusts can help you make the best choice for your situation. Here’s a breakdown of some of the most common trusts in Michigan—what they do, who they’re for, and how they can work for you and your family.
1. Revocable Living Trust
A revocable living trust is one of the most popular types of trusts in Michigan. It allows you to transfer your assets into the trust during your lifetime while maintaining full control over them. You can amend, revoke, or add assets to the trust at any time, which makes it a flexible option for many individuals.
The primary benefit of a revocable living trust is that it helps your estate avoid probate, the legal process by which assets are distributed after death. Since assets held in a revocable trust don’t go through probate, your beneficiaries can receive them more quickly and without the associated court costs and delays. This type of trust is ideal for those looking for ease of asset management during their lifetime and smooth asset transfer after death.
Who Benefits?
Individuals who want to avoid probate and ensure a streamlined distribution of assets.
People who wish to maintain control over their assets during their lifetime but ensure their wishes are followed after death.
2. Irrevocable Trust
As the name suggests, an irrevocable trust cannot be altered, amended, or revoked once it’s created, except under specific circumstances. This type of trust is often used for more specific estate planning goals, such as reducing estate taxes, protecting assets from creditors, or leaving a charitable legacy.
By transferring assets into an irrevocable trust, you remove them from your personal estate, which can significantly reduce your taxable estate. Since you no longer control the assets, they’re also protected from potential creditors, divorce settlements, or lawsuits.
Who Benefits?
Individuals looking to minimize estate taxes and protect assets from creditors or other claims.
People who want to ensure their wealth is used for a specific purpose, such as charitable donations.
3. Testamentary Trust
A testamentary trust is a trust that is created under a will and only takes effect upon your death. Unlike other trusts, a testamentary trust does not exist during your lifetime but comes into play after your passing as directed by your will. It can be used to set aside funds for minor children, provide for a spouse, or allocate assets in a way that fits your long-term goals.
The main downside of a testamentary trust is that it does not avoid probate, as it is funded through your will. However, it still offers flexibility in how your estate is divided and can be structured to meet specific family needs.
Who Benefits?
4. Charitable Trust
A charitable trust is designed to benefit a charitable organization or cause. This type of trust allows you to leave a portion of your estate to charity while potentially gaining tax benefits during your lifetime. Charitable trusts come in different forms, but all are structured to benefit a charitable cause and provide income or tax deductions for the donor.
There are two common types of charitable trusts:
Charitable Remainder Trust (CRT): This trust provides income to you or your beneficiaries during your lifetime, with the remaining assets going to a charitable organization after death.
Charitable Lead Trust (CLT): This trust provides income to a charity for a set period of time, after which the remaining assets are distributed to your beneficiaries.
Who Benefits?
5. Special Needs Trust
A special needs trust is designed to provide for individuals with disabilities without jeopardizing their eligibility for government assistance, such as Medicaid or Supplemental Security Income (SSI). The funds in a special needs trust are not counted as the beneficiary’s assets, ensuring their eligibility for public benefits is not affected.
This type of trust is crucial for ensuring that a loved one with special needs is cared for financially without losing access to vital benefits that help with medical care, housing, and other top needs.
Who Benefits?
Families with a loved one who has special needs and needs ongoing financial support.
Individuals who want to ensure that a person with a disability has access to additional resources while maintaining government benefits.
6. Spendthrift Trust
A spendthrift trust is designed to protect the trust’s assets from creditors or from being mismanaged by beneficiaries who may not be financially responsible. The trust is often used when a beneficiary is prone to overspending or has debt problems. The trustee manages the funds and distributes them according to the terms of the trust, protecting the assets from being used unwisely or seized by creditors.
Who Benefits?
Choosing the Right Trust
When planning your estate, choosing the right type of trust is essential to ensuring that your wishes are honored and your loved ones are provided for. At Keating Law, PLC, we understand that each individual’s situation is unique, and we are here to help guide you through the process of creating a trust that fits your needs and goals.
Whether you’re looking to protect your assets, provide for a loved one, or leave a charitable legacy, we can help you navigate the various types of trusts available in Michigan and ensure your estate plan reflects your wishes.
Contact us today to schedule a consultation and take the next step in your estate planning journey.