If you took a gap year, you may have come across a few young travelers who had more money than most and did not need to work to fund their endless vacation. They were able to do this because a kindly relative had left them a regular supply of money through a trust fund. You may have envied them, but also decided it is not something you would want to do for your own children in the future.
However, you should not dismiss trusts completely. Trusts can be used in a number of ways and can have significant advantages, even if you have a more modest estate.
Trusts fall into two categories: revocable and irrevocable. It is essential to understand the differences. Revocable trusts are ideal if you tend to change your mind about your goals. You retain control over the trust and can make changes as you go. If you need to take the assets out to pay for healthcare, you can. If you fall out with one of the beneficiaries, you can remove them. If you find a new partner and want to leave them something, you can add them as a beneficiary. You can also alter the terms of the trust.
By contrast, you cannot usually make changes to an irrevocable trust. These trusts do have some significant advantages in exchange for their inflexibility: They protect your assets from creditors, unlike revocable ones. They also help your beneficiaries avoid paying tax on the income their inheritance generates. They can also shield your assets from estate taxes. Although with the current estate tax exemption at over $11 million, this is irrelevant to most people.
Seek legal help if you wish to understand more about how you could use a trust as part of your estate plan.