Creating an estate plan should be a priority for all adults. There are various things to consider during this process. For example, what will happen to an estate planner’s assets after their death is an important issue worthy of attention.
Passing along assets to the creator’s beneficiaries can be done via a will or through trusts. If trusts are a chosen estate planning tool, their creator should know they aren’t all the same. Trusts are divided into two categories: revocable and irrevocable.
What are revocable trusts?
Revocable trusts are known as living trusts because the creator maintains the ability to change or revoke them. Because the creator maintains control over the contents of the trust, there’s no protection from creditors. Additionally, there aren’t any tax benefits during the creator’s lifetime.
The assets that are transferred into the trust aren’t part of the probate estate. This means the beneficiaries can get their inheritance a bit quicker than if they had to go through probate. The terms of these trusts aren’t public, so they offer privacy for the beneficiaries.
What are irrevocable trusts?
Irrevocable trusts offer asset protection because the creator doesn’t retain control over the trust. Because of this, the assets aren’t able to be touched by creditors or legal judgements. This makes these trusts a viable option for people who have high-risk professions.
These trusts can also offer significant tax advantages. Assets in these trusts aren’t part of the estate, so they aren’t taxed according to the value of the estate. Instead, they’re taxed as a separate entity. The same is true for income generated by the trust, which can also lead to tax savings.
The trade-off for these benefits is the lack of flexibility. Once the trust is created, the creator loses control over the assets and can’t make changes to the trust terms without the consent of the beneficiaries or a court order.
A comprehensive estate plan provides instructions for a creator’s loved ones when the creator dies, in addition to addressing other issues. Working with a legal representative who can offer assistance throughout the estate planning process may help reduce the stress that this process traditionally inspires.