(MONEY Magazine) – The decisions you make about distributing your assets when you die are deeply personal. But to make those decisions effective, you have to use the right tools--wills, which have to go through probate, and trusts, which do not. Here are several of the most common tools; all require professional advice.
REVOCABLE OR LIVING TRUST Gives fiduciary control over your assets to a trustee for your benefit or that of another beneficiary. As long as you are alive, you can change or cancel a revocable trust; once you die it becomes irrevocable.
IRREVOCABLE TRUST Once you set up an irrevocable trust, the assets in it are no longer yours, and typically you can't make changes without the beneficiary's consent. But the appreciated assets in the trust aren't subject to estate taxes.
SUPPLEMENTAL- OR SPECIAL-NEEDS TRUST Typically set up to provide benefits for a disabled person while maintaining his or her eligibility for government assistance. The key here is that no assets pass directly to the beneficiary. The trustee--who should not be the beneficiary--can distribute funds from the trust to pay for things that government programs will not cover.
INSURANCE TRUST This irrevocable trust purchases a life insurance policy for you, thus removing it from your estate--and from estate taxes--but allowing you to maintain legal control over how the proceeds can be spent.
ETHICAL WILL An essay or letter that sets out your thoughts and wishes about how you want your heirs to live. It's not legally binding but can help your heirs understand your intentions in dividing your estate. --ROBERTA KIRWAN