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If you're wondering what is a living trust and do I need one, you need to understand its role in estate planning to gain important advantages from its use. You don't need to be rich to benefit from setting up a trust fund. Often, a trust instrument is used for avoiding probate, privacy, and/or asset protection. We'll examine the purposes and advantages of a trust below.
A testamentary trust is created in a will and takes effect when the grantor dies. A testamentary trust will be subject to court oversight during the probate process. A testamentary trust is often used to distribute after-acquired assets not identified in a will.
Living trust forms fall under two general categories - revocable trust and irrevocable trust. These categories can then be broken into further types, depending on their purpose, such as a charitable trust, special needs trust, Medicaid income trust, family trust, asset protection trust, etc. It's possible for the same person to be named as grantor, trustee, and beneficiary.
Irrevocable trust form - The creator of the trust, called the grantor, cannot terminate or change an irrevocable trust. By using an irrevocable trust form, the grantor will no longer be subject to taxes on it and will not include it as part of his/her taxable estate upon death. Creditors are less likely to be able to claim to assets are owned by the grantor.
Revocable living trust form - By being revocable, the grantor retains a degree of control over the assets. It is also sometimes called a grantor trust. A revocable trust provides less protection from attachment by creditors of the grantor.