Takeaway: If you want to make all your personal business public and expose your loved ones to fraudsters and marketers, leave it in a will. If you value privacy, put your stuff in either a living trust or irrevocable trust, depending on your goals and the value of your estate.
3. Protect assets for heirs
Assets controlled by an irrevocable trust receive certain protections from creditors, unexpected life events and possibly "wicked" stepparents. While a living trust is not irrevocable while you are alive, it becomes irrevocable at your death, thus adding extra protections for your beneficiaries.
"If you're leaving assets to a spouse or for the benefit of children, the terms of the trust can protect the child or spouse from creditor attacks," says Jones. He's quick to point out that the creditor protection in the case of a living trust doesn't protect the grantor (creator) of the trust, but is for the beneficiaries of the trust.
By adding provisions to the trust, you can protect your loved ones from unfortunate life circumstances that might come up. What if your beneficiary develops a drug problem? Adding a spendthrift protection clause prevents the beneficiary from transferring any current or future rights in the trust to creditors, predators or any other third party whether voluntarily or otherwise.
Another provision could protect assets in case the beneficiary becomes disabled so that the trust assets need not be drained before that beneficiary qualifies for Medicaid or federal assistance.
"If you are creating trusts for your children because you are concerned about asset protection, whether it be from a general creditor or divorcing spouse, and want the ability for a third party to manage assets for them, then you will want to make sure that assets that pass outside of the estate are directed, using a beneficiary designation, into the trusts that you have created for your children," says Schneider. "All of that planning is revocable -- it can be changed the next day or next year, as long as you are competent and living," she adds.
A problem often arises in cases of second marriages. Typically, parents want to make sure their children from previous marriages ultimately receive their inheritance, but also want to make provisions for the second spouse.