You may think of trust funds as being something only for high wealth individuals. But trust funds, whether large or small, are a great way to make sure that your children receive a benefit from your assets, regardless of what happens to you.
Here are four of the types of trusts that might apply to your situation:
A living or revocable trust
A living trust allows you to modify the terms of the trust while you are living, but your heirs will not have to probate a will when you die. This gives you flexibility in case your circumstances change during your lifetime.
An irrevocable trust
As the name implies, once you have set up an irrevocable trust it is extremely difficult to change. If changes in the structure are ever necessary, the law would likely require legal action and/or the consent of the beneficiaries. However, this kind of trust provides greater protection for the beneficiaries. For example, if you are concerned about creditors trying to get at your assets, an irrevocable trust may protect them for your heirs.
A special needs trust
If one or more of your children have health issues or cognitive challenges, a special needs trust can ensure that there is money to care for them after your death. Setting up a trust of this type correctly also ensures that your child can still receive benefits, such as Social Security, to which he or she is entitled.
A spendthrift trust
A spendthrift trust does not allow the beneficiary to liquidate the assets of the trust or use them as collateral for a loan. Constructed properly, this type of trust can also protect the beneficiary from creditors who might otherwise seek the assets of the trust. This protects the assets of the trust and ensures that the beneficiary enjoys the income from it.
What type of trust is right for you depends on your particular situation. Properly chosen, a trust can serve to minimize tax and protect your assets.