Many individuals use a will as part of their estate planning process. A will is widely used document that directs the distribution of assets after an individual's death. Sometimes, though, an estate plan needs more direction than a will can provide. That's where a trust comes in. A trust can be used to meet specific goals, such as limiting access to certain assets or minimizing estate taxes. There are several different types of trusts available based on an individual's specific needs and goals.
The biggest distinction between types of wills is in how the will is implemented. Living trusts are created and enacted when the person is alive. This is usually done so the person can maintain some control in how the will is established and operated. The other type of trust is a testamentary trust, which is established through a person's will at their death. The will creates the trust and distributes assets into the trust.
Living trusts can either be considered revocable or irrevocable. In a revocable trust, the trust owner still maintains control of the assets. He or she can pull the assets out of the trust at any time. A living trust may be used to simply control not only to whom assets are distributed, but how and when they are distributed. An irrevocable trust is often used for estate tax purposes. Assets that go into an irrevocable trust can't be withdrawn unless the beneficiary signs off on it. Any appreciation in the trust avoids estate taxes.
While a will may form the base of any estate plan, there are certain situations in which a will may not be sufficient to meet the estate planning goals. When estate taxes need to be minimized or when the assets need to be managed after death, a trust may be necessary. An experienced estate planning attorney could help an individual review their plan and determine whether a trust is right for them.
Source: CNN Money, "What kinds of trusts are there?", December 07, 2014