Last month we reviewed some basic trust concepts. Key points included:

Let’s add three more key characteristic of trusts that make them great estate planning tools:

Living trust

The first type of trust that we see in estate planning is a revocable trust, often called a living trust. The same individual starts out in all three roles: The trustmaker serves as the trustee, and the trust is for his or her own benefit for life. Let’s say you are the trustmaker. You reserve the right to amend and even revoke the trust. This arrangement doesn’t fit the traditional trust concepts, because there is no separation of control from benefits. Without such separation, the assets of the trust still belong to you for tax purposes and with respect to creditor claims.

The main benefits of a revocable living trust arise from succession of trustees and beneficiaries. When you are no longer able, your successor trustee can take charge of the trust assets without complicated legal procedures. This person you chose can promptly handle your financial affairs with minimal complications. If you are disabled, your successor trustee manages the assets for your benefit. When you die, your successor trustee manages the assets for the benefit of your successor beneficiaries. In this way the living trust serves as a sort of “will substitute” where the successor trustees, without court involvement, wind up your affairs, pay your bills and taxes, then divide or manage the remaining assets.

Irrevocable trust

The other category of trust is irrevocable. Irrevocable does not mean forever. Virtually all trusts end at some point. Irrevocable does not necessarily mean unchangeable. If you make an irrevocable trust, you cannot revoke it. It might be established while you are living or at your death.

An irrevocable trust created during your life requires you to give up some control of assets placed in the trust. This might protect and preserve the assets or help reduce your estate taxes. Under many circumstances, a lawsuit or other claim against you could not reach assets you irrevocably placed in trust. Sometimes a gift has been made for tax purposes, resulting in a smaller taxable estate on death. You might be a beneficiary of the trust for the rest of your life, after which it will be for other beneficiaries, or the trust might be for other beneficiaries immediately.

If you have goals that involve helping your farm and family in the future, consider one or more irrevocable trusts that will be formed on your death. It still seems that such trusts are not well understood. A post-death trust for your children can be created within the larger document that creates your living trust. The living trust starts out benefiting you, then transitions into a different type of trust for your successor beneficiaries, managed by your successor trustee.

Such a trust for your children can include restrictions — keep the farmland or sell to their siblings, for example — but need not tie their hands. The trust created for your children is irrevocable. You cannot revoke it … but you will be dead. Such a trust will protect the trust assets from catastrophes like divorces and lawsuits. Your child cannot be the trustmaker, but they can serve as both beneficiary and trustee. This allows them to manage their inheritance for their own benefit. Many types of changes can be made, further enhancing your child’s control.

There is no one-size-fits-all post-death trust for your children. But a personalized plan can assure your heirs get maximum benefits from an irrevocable trust you create for them.