Trusts provide for the distribution of your assets according to your wishes after you die. Establishing this estate planning tool may also provide tax advantages.
You can choose from many common types of trusts used for estate planning in California.
Revocable living trust
This trust is a versatile tool that allows you to maintain control over your assets during your lifetime. When you die, the property in the trust seamlessly transitions to your selected beneficiaries. You can change or revoke this trust at any time, making it a flexible choice.
You cannot easily change or cancel an irrevocable trust, so it is a more permanent option than a revocable living trust. While this might seem restrictive, an irrevocable trust can offer certain tax benefits and asset protection. Be sure to carefully consider your options before choosing this type of trust.
You can establish this type of trust in your will. A testamentary trust takes effect when you die. You can designate beneficiaries to receive specific assets or funds. A testamentary trust can also include clear instructions on how the recipients should manage or distribute those assets.
Charitable remainder trust
If you wish to leave a charitable legacy, a charitable remainder trust creates an income stream for yourself or a loved one. The remaining assets go to a charity of your choice when the initial beneficiary dies.
Special needs trust
This type of trust financially supports a loved one who has special needs. According to the California Department of Housing and Community Development, nearly 1.5 million state residents cannot live independently because of a disability.
A special needs trust will not affect the person’s eligibility for government benefits. You can ensure they have their financial needs met while still receiving necessary assistance.
Qualified personal residence trust
With this strategy, you transfer your primary or vacation home to the ownership of an irrevocable trust. You can continue to live in the property for a specified period. When that timeframe ends, the home goes to your beneficiaries. They may pay reduced gift taxes on this type of transaction.
You can leave assets to your grandchildren or even further descendants instead of directly to your children. A generation-skipping trust can reduce estate taxes and continue your legacy for generations.
Each type of trust serves specific purposes and offers distinct advantages. Selecting the right option can minimize the tax liability of your estate while documenting your wishes for asset management and distribution.