Most people put off formalizing instructions for after we die. In fact, less than half of Americans keep updated legal documents throughout their lives.¹

But when the time comes, a thoughtful estate plan for those you love is a gift.

A will is your estate plan’s base. Since wills only go into effect when you die, and they come with certain limitations (more on that later), a personal trust may help where a will can’t—decreasing the burden on your loved ones and making it easier for them to carry out your wishes.

Want to start with a will? Learn how to make one.

“People often think that trusts only apply if you have millions,” says Heather Winston, assistant director of financial advice and planning at Principal^®. “But if you have assets—anything from money and investments to a prized record collection or a classic car—a trust is a way to ensure your wishes are met.”

Here’s what to know when considering adding a trust to your estate plans.

What is a personal trust?

A personal trust is a legal structure. You transfer ownership of your assets into the trust, continue to enjoy them while you’re alive, and very specifically define what happens to those assets under certain circumstances or upon your death.

You’ll name a trustee or custodian to carry out these terms of your trust.

A trust allows you to:

• control exactly what happens to your assets,
• specify how inheritances are distributed (for instance, limiting a young person’s access or specifically paying for their education),
• outline steps to take if you become incapacitated (maybe you’d sell that classic car to pay for long-term care),
• protect something you treasure in a divorce,
• avoid or reduce estate taxes as well as the time and cost of probate, and
• take the burden of decision-making off your family.

“You can be specific when setting up a trust,” Winston says. “In turn, you can help your loved ones by taking some of the emotion out of the financial aspect of what to do and when.”

What are the different types of trusts?

Trusts can either be testamentary (created after your death) or living (created while you’re alive). And living trusts can either be revocable or irrevocable. Here’s how each works:

• Testamentary trust
  Testamentary trusts are set up in a will and go into effect after your death. The trust becomes the owner of any assets that pass to it in your will.
• Revocable living trust
  These are set up during your life and have the most flexibility. After you create the trust, you have the option to change what’s in it, who manages it, and who the beneficiaries are.
• Irrevocable living trust
  This type of trust is also set up during your life and is usually used to reduce the amount of assets subject to estate tax.* Once you’ve established and funded it, generally it can’t be changed.

Your options can get much more individualized, too. An estate planning attorney can help you figure out exactly the right trust for your needs.

• Special needs trust
  This type of trust helps take care of the beneficiary without jeopardizing their access to government benefits, such as Social Security disability and Medicaid. While the trustee can’t pay funds directly to the beneficiary in this case, they can use money from the trust for the beneficiary’s behalf.
• Irrevocable life insurance trust
  With an irrevocable life insurance trust, the death benefit from your life insurance policy is passed through the trust to its beneficiaries. This provides cash to pay taxes and might protect the life insurance money from creditors. It may also reduce estate taxes when you die*—though the federal threshold for those taxes is pretty high, currently at $11.7 million.

Winston says it’s never too early to start planning for your family’s future . And trusts are a great option, no matter your financial situation.