I'm trying to handle my personal finances and estate finances and I'm so confused about trusts. I sort of know about irrevocable trusts, but what about individual trusts and family trusts? What's the difference? I'm so confused about it and I've tried researching it but it doesn't make any more sense to me. Can someone help clarify them for me?
Trusts: Explain them to me like I'm 5
byu/Upper_Junket_9481 inpersonalfinance
Posted by Upper_Junket_9481
3 Comments
Trusts are when money or other assets are held and controlled by one person for the benefit of another person. There are far too many types of trusts to be more detailed than that.
For most people keeping an updated will is good enough
Trusts only make sense for more complicated situations and inheritance.
There are revocable trusts amd irrevocable trusts, and they are exactly what they sound like. One can be undone, the other cannot. Revocable are often used to avoid probate and protect children from themselves. Irrevocable can avoid having trust property assigned to you as assets for things like estate taxes, medicaid determinations, court judgments, etc.
For a trust you have the trustor (aka grantor, the person who owns the property that’s being put into the trust), the trustee (the person who controls the trust assets), and the beneficiary (the person who the trust is supposed to benefit). For my marriage’s trust, we are all three until we die. The purpose of our trust is to keep our 9yo from inheriting millions in home equity, retirement, and life insurance if we both die before she’s 25. We will always be the trstors, but my sister-in-law is the successor trustee if we die. Kid is the successor beneficiary. Almost all our accounts have our trust’s name on them but in practice it is all our property and nothing changed. I still run them like always. But if we die, my sister-in-law can simply show the bank all of our documents and she is in charge almost immediately. No waiting 9 months and having to pay for our kid out of her pocket. At 25, my kid will automatically get everything. No courts involved anywhere and we can adjust that age as we see how responsible she is later in life.
Our CA lawyer suggests a revocable trust for anyone with (a) $1M+ OUTSIDE of IRA/401k (those don’t go thru probate anyway) or (b) minor children. Different states probably different recommendations.
Irrevocable trusts I know less about because I don’t need or want anything that drastic yet (or ever). You lose control of your assets with those.