Trusts have become a common part of estate planning for many people. Before you create a trust, it is important to understand the different types of trusts and how to decide which one to have.
The different types of trusts commonly used in estate planning are revocable trusts, irrevocable trusts, simple trusts and complex trusts. A revocable trust can be amended or revoked while an irrevocable trust is on that cannot be changed. Individuals who have a trust agreement either have a revocable or irrevocable trust.
A simple trust refers to the federal tax designation. A trust can either be simple or complex. A simple trust is used when the trust will pay for all of the income to the beneficiary of the trust. Complex trusts are not required to distribute all of the income in the trust. Individuals should know that a simple trust can become a complex trust if the trustee fails to pay the estate's bills or mishandles the income.
Irrevocable trusts can be either simple or complex but it is best to check with an estate planning attorney to discuss which option is the best for your individual estate. A revocable trust does not have any tax reporting requirements so individuals usually don't need to determine if the trust will be simple or complex.
Trusts can be complicated and difficult to understand. That is why it is important for individuals to discuss all of their options when planning for their estate to see what will fit the best interests for their family and estate.
Source: NWI Times, "Estate Planning: Simple versus complex trusts," Christopher W. Yugo, May 25, 2013