Keep in mind estate planning involves long-range planning and therefore is advisable even for young adults, especially young adults with children. Making a will is a primary part of estate planning. In addition, you may choose to establish a trust. One advantage of establishing a trust is by doing so the estate avoids probate.
A trust is established when the holder distributes his/her property or assets to another party according to his/her wishes. It is advisable to consult an attorney when drawing up a will or creating a trust. By creating a trust, a portion of estate and death taxes can be avoided.
Type of Trusts
- Living Trust: This is a trust that is in effect during the trustor’s lifetime. “Assets assigned to a living, revocable trust are still a part of the owner’s estate, and the assets assigned to that trust will be subject to estate and death taxes but not probate costs” (Investing for the Future p. 285).
- Testamentary Trust: This a trust created by the death of the trustor, usually within a will. “The assets are assigned to the trust upon the completion of probate and the trust controls the assets from that point on” (Investing for the Future p.285).
- Specialized Trusts: For example, there are many charitable trusts to choose from that provide current tax-saving benefits while also providing for heirs and funding a cause you support.
When establishing a trust, you can decide if you want it to be revocable or irrevocable. A revocable trust can be changed while you are still living. However, a revocable living trust become a irrevocable testamentary trust upon your death.