A revocable trust gives the grantor full control over the assets that go into the trust and how those assets will be distributed. Also known as a living trust (because it can be changed), the revocable trust can be revoked, or closed, at any point during the grantor's lifetime. Once the grantor passes away, it will become an irrevocable trust.
An irrevocable trust cannot be changed once created. This type of trust fund can protect assets from creditors and estate taxes.
Some popular uses for trust funds include:
- Retirement savings: 401(k)s and IRAs are technically trust funds. If you have a 401(k) at work, it's a trust fund that you and your employer put assets into, and you are the named beneficiary.
- Charity: Someone might set up a charitable trust fund to benefit specific organizations after they die or while they're still alive. A charitable trust can be used for tax planning, taking the itemized deduction in one year and distributing the funds to charities over many years in the future.
- Special needs: A person with special needs who receives government benefits like Medicaid or Supplemental Social Security income must keep their assets below a certain threshold. A trust fund can be used to ensure a disabled person can still receive those benefits.
There are many more types of trusts and estate planning strategies used to maximize the value of assets and pass on wealth to the people you care about. This is just the tip of the iceberg.
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