Trusts are very flexible and may be set up to accomplish a variety of different purposes. They may be revocable trusts, which can be changed during a person's lifetime, or irrevocable trusts, which cannot be changed after they are established. Both types help by avoiding probate court after death, allowing for a smoother passing of assets to the beneficiaries.
Irrevocable trusts serve to remove assets from a person's estate. They are more appropriate for people with very large estates that might otherwise be subject to estate taxes. Creditors cannot touch the assets held in irrevocable trusts, and the assets also cannot be reached if the settlor is sued.
There are many different types of trusts within the two broad categories. Generation-skipping trusts can help to avoid estate taxes and are used to pass assets to grandchildren instead of to children. Qualified personal residence trusts allow people to pass their homes to their beneficiaries with the homes being counted in their estates. Credit shelter trusts help married couples by maximizing their state and federal exemptions in order to reduce or avoid estate taxes. Since the estate tax exemption is currently set at $5.45 million and there are also portability rules, these latter types of trusts are not as useful as they once were.
Trust planning may be a good idea when people are thinking about how to plan for their estates. Trusts may be established to accomplish a broad variety of goals, including giving to charity, helping to control the way in which a beneficiary spends the money, caring for adult children with special needs and others. An estate planning attorney might advise clients regarding the types of trusts that might be the most beneficial for their individual needs and goals.