Trusts can play a pivotal role in estate planning, offering you a versatile and beneficial means of managing and distributing your assets. They can be tailored to suit various needs and objectives, making them a vital tool in effective estate management.
Understanding the differences between irrevocable and revocable trusts is essential. This knowledge can give you the basis to determine what types of trusts to include in your estate plan.
Revocable trusts
A revocable trust is flexible and can be altered or revoked at any point during your lifetime. This type of trust becomes irrevocable upon your death. The primary advantage of a revocable trust is that it enables your loved ones to bypass probate, which involves the court and is the legal process of distributing your assets. This can save your heirs and beneficiaries time and money. It also enables them to remain as private as they want about what they receive.
Assets in a revocable trust are still considered part of the trustor’s estate for tax purposes. The assets remain in your control, so they are not protected from creditors.
Irrevocable trusts
An irrevocable trust generally cannot be altered or revoked once you establish it. This means you relinquish control over the assets, and the trust is considered a separate legal entity.
The main advantages are the potential tax benefits and asset protection. These assets are generally protected from creditors because you do not have any control over them. The trade-off is the loss of control over trust assets.
Trusts are an effective tool in estate planning, but they are only one component of a comprehensive estate plan. When thinking about your own needs, you should work with someone who can help you to find ways to make your wishes a reality. This can give you the chance to care for your loved ones in the ways that you want and can give you peace of mind that your wishes will be honored.