If you want to be sure that your assets will be properly and privately distributed, according to Yahoo Finance in “How to Choose Between a Revocable and Irrevocable Trust,” you should speak with an experienced estate planning attorney to make these important decisions. Depending on your situation and the type of trust, you may also gain some tax advantages and protect your assets from creditors.
Irrevocable or Revocable Trust
Think about the amount of control that you need over your assets. This will dictate if you should have an irrevocable or revocable trust (provided one of these is appropriate in your situation).
A revocable trust allows you to revoke and rewrite the terms of the trust. However, an irrevocable trust does just the opposite. You—otherwise legally called the trustor, grantor, or settlor—create the irrevocable trust, then relinquish control to a trustee. There’s no do-over, and you can’t change the terms of the trust or fire the trustee without getting the approval from the beneficiaries. The amount of control as the grantor over the trust equates to the benefits. The more control that you have, the fewer the immediate benefits. However, the less control you have, the greater the potential benefits in the future.
If your goal is to reduce estate taxes, which has been the traditional rationale for a trust, recent changes to tax law state that the exemption on estate taxes is now $10.98 million for married couples. This eliminates the tax reduction rationale for many people. There’s no tax savings by pouring assets into a revocable trust. And this trust doesn’t protect assets from creditors like an irrevocable trust will do.
The main reason for a revocable trust is to accept assets when you can no longer manage your own affairs. When you move assets to a revocable trust, you give instructions on how they should be used upon your death. This usually occurs without going through probate and has some level of privacy for your living heirs. When you pass, a properly set up revocable trust will become an irrevocable trust, with a trustee managing it. As a result, a revocable trust can become somewhat of a substitute for a will and will give some privacy to the family.
A revocable trust is useful for setting up plans to handle your assets and income if you become incapacitated. The trust will contain a provision for the continued management of the assets without a formal court order. However, you might also be able to achieve the same planning goals by using a general durable power of attorney. Talk with an experienced estate planning attorney to be sure.
Irrevocable trusts are only for those who are super sure. The main irrevocable trust advantages (tax advantages) are primarily for the very well-off. Those advantages can be complex. For everyone else, the advantages of irrevocable trusts are in addressing special circumstances, like guaranteeing for the continued support of a disabled dependent or ensuring the protection of assets from professional liability.
Here’s the part that people often neglect to do: place the assets in the trust. This happens more often than you might expect!
Used correctly, trusts have many different applications: transferring wealth to grandchildren, protecting assets from divorce proceedings and providing a means of protecting loved ones. Talk with your estate planning attorney to see if your situation warrants the use of a trust.
Legacy Counsellors, P.C. prefers trust centered estate plans because of their many benefits. If you are interested in creating an estate plan, please contact us today.
Reference: Yahoo Finance (January 23, 2017) “How to Choose Between a Revocable and Irrevocable Trust”