A properly funded trust allows you to avoid probate, minimize taxes, provides organization, maintains control, and provides for yourself and your heirs. In its most simple terms, a trust is a book of instructions wherein you tell your trusted people what to do, when.
While there are many types of trusts, the major distinction between trusts is whether they are revocable or irrevocable. Here’s a quick review of both so you can better know the differences.
Revocable Trust. A revocable trust is also known as a “living trust” because it can benefit you during your lifetime and you can change or cancel it if your circumstances or goals change.
- You stay in control of your revocable trust. You can transfer ownership of property into the trust and take it out, serve as the trustee (the individual in charge of managing the accounts and property owned by the trust), and be the beneficiary. You have full control. Most clients like that feature.
- You select the back-up trustees to manage the trust if you become unable to do so and when you die. You, not the courts, select who is in charge when you need help.
- The accounts and pieces of property owned by the trust avoid probate. This is because although you may die, a trust never will. The trust will continue to be the owner of the accounts and property until the trustee has been instructed by the trust document to transfer those accounts and property to the intended recipients. By avoiding probate, you are saving your loved ones time and money, as well as keeping the details of your estate plan private.
- You determine how your beneficiaries will receive their inheritance. If your beneficiary is young, going through a divorce, bad at managing money, or has a possibility of being sued, a properly drafted trust can protect the money and property you leave the beneficiary.
Irrevocable Trusts: Similar to a revocable trust, when an irrevocable trust is used, money and property are transferred out of the trustmaker’s individual name and into the name of the trust. However, with an irrevocable trust, you, as the trustmaker, cannot alter, change, or cancel this trust after it has been signed. Additionally, in order to maximize the benefits of an irrevocable trust, you usually cannot control what happens to the money and property once it is given to the trust.
- Accounts and property owned by an irrevocable trust have increased protections from creditors and lawsuits.
- Your personal tax liability is often reduced because, in most cases, the accounts and property owned by the irrevocable trust are no longer part of your estate. However, your irrevocable trust might have to pay taxes.
- In some cases, a trust protector can modify your irrevocable trust if there is a change in circumstances and your initial goals for the trust become frustrated.
As experienced estate planning attorneys, we can help you figure out whether a revocable or irrevocable trust is a good fit for you and your loved ones. Call us today to set up a virtual or in-person meeting!