It can be challenging to know when its time to form an estate plan. Many hold off either in fear, knowing that thinking about a trust or will means thinking about the end of their life. Others hold off because they like the way things are and believe they have plenty of time to consider forming one in the future, while some people don’t pursue an estate plan because they don’t think it’s necessary or are confused and don’t know where to begin.
Living trusts offer many benefits, like avoiding probate, flexibility in how you choose to distribute the assets of your estate, establishing a college fund for your children, and philanthropic efforts, among others.
All trusts go into effect while you’re living. Roles of trust creation, management and distribution include the trustmaker or grantor (this is you), the trustee(s) (the person or persons who manage and distribute the assets), and the beneficiaries (those who receive the assets at the direction of the trustee or trustees).
But how do the two most common types of living trusts, revocable and irrevocable, break down? And more importantly, which one is right for your situation?
This type of trust is a good option for those who keep control of their assets but would like some help managing them. A revocable trust is also a good option for individuals who are thinking about multi-generational planning. You want to make sure your children and their children reap the benefits.
Revocable trusts offer you the benefit of acting as the grantor and as a trustee and beneficiary. The trust, as in most situations, is managed by another trustee, but your rights (which can be decided on when creating the trust) will be clearly defined. If you would like, additional heirs can be named to inherit assets when you pass.
A revocable trust offers you the option of naming a co-trustee. This is beneficial in you choose to manage the estate yourself, but know that in time, illness or disability will lead to the co-trustee assuming control.
Other benefits include avoiding probate, a thorough and often contentious process to determine the trusts’ validity.
An irrevocable trust is the better option for those who wish to relinquish some control of their estate and its associated assets. It’s smart to move assets out of your name if you want to plant a nest egg for upcoming generations.
Transferring ownership of certain assets also trims the size of your estate, thus lowering your estate tax, which can protect you from creditors and estate litigation. If you do transfer property, you cannot regain control. Also, irrevocable trusts do not allow the ability to change to dissolve the trust (revocable trusts do). An irrevocable trust is set in stone. Irrevocable trusts can also assist with Medicaid eligibility.
While it’s up to you to choose your trustee, consider this advice when making your decision.
Estate planning is the best option to make sure your affairs are in order when you are alive and to ensure your estate thrives once you’ve passed on. Whenever you decide to pursue the planning of your estate, an estate planning attorney can provide well-informed knowledge of which choice is best for you and handle the legalize associated.