If you have been considering setting up a trust, you undoubtedly have many questions. For one thing, you may wonder why you would need one when you already have a will. You might also wonder what happens to a trust after you pass on. Here are a few of the basics that may help you decide whether establishing a trust would be a good estate planning move for you and your family.
Revocable or irrevocable
There are many kinds of trusts, but revocable and irrevocable are the major distinctions. An irrevocable trust cannot be altered or dissolved, while a revocable trust, also known as a living trust, is flexible, and the grantor—you—can make changes in the document or cancel it at any time. Many people like this type of trust because among other benefits, it keeps your assets away from the probate process.
A revocable living trust becomes the container for your assets, and you simply transfer them out of your name and into the name of the trust, and they will remain under your control during your lifetime. Putting your assets into a living trust in this way will help them pass outside of probate, but estate taxes will still have to be paid. The trust becomes irrevocable when you die, provides maximum privacy and is difficult to contest, and distribution to your beneficiaries can be made much more quickly than would be possible through probate.
Protection if you should become incapacitated
You should choose a successor trustee carefully because this individual will take charge of your care and your financial affairs if you should become physically or mentally incapacitated. If you recover, you can simply take back control of your trust. The successor trustee will also manage your trust after you die. Major responsibilities will be to file your final tax return, pay your debts and see that your assets are distributed properly.
Reduce estate taxes with an irrevocable trust
You can reduce or even eliminate your estate taxes by placing your assets in an irrevocable trust. A further tax benefit is that there will be no tax liability on any income produced by the trust assets. Keep in mind, however, that once your irrevocable trust is established and funded, no changes can be made and it cannot be dissolved.
Helping you make a decision
There are pros and cons about both types of trusts, and you may need further information about each one. An experienced estate planning attorney can answer your questions and help you decide if a will alone is sufficient for your particular circumstances or if establishing a trust would be to your benefit.