Having an estate plan allows you to protect your assets and have a strategy in place to make the process of estate administration easier for your loved ones. Most people are familiar with the last will and testament, but there’s another estate planning tool you should take into consideration — revocable living trust.
Read on to know what a revocable living trust is and learn about the advantages of setting up a trust. If you’re considering setting up a living trust, make sure to speak with a reliable estate planning attorney.
Trusts and Wills
A trust is a legal document detailing the arrangement wherein the trustee holds the legal title and deeds for the beneficiary of a trust. The trust arrangement establishes how you want to manage and distribute your assets and property held in a trust after death. Both wills and trusts allow you to name your beneficiaries and leave property to your children.
Since the title to trust assets and property is under the name of the trust and not under your name, these will be able to avoid probate. In most cases, the probate process makes estate administration timely and expensive. Avoiding probate makes the process of transferring trust property and assets smoother for the beneficiaries of the trust.
If you’re thinking about drafting a trust, an estate planning lawyer can determine which type of asset protection best fits your situation and prepare your estate planning documents.
Types of Trusts
A living trust (also known as inter vivos trust) is simply a trust agreement that was established while the trustor is still alive. There are two types of living trusts: revocable and irrevocable living trust.
The main difference between the two is that the former gives you the ability to modify or terminate the trust documents, while the latter doesn’t. Since you can be the trustee to your trust, a revocable living trust allows you to alter the terms of the trust. For example, you can add or remove a trust beneficiary, or change which beneficiaries will receive certain assets or trust funds.
For irrevocable living trusts, you’ll need to get approval from the trust beneficiaries before an established trust can be amended or revoked. This is because, under trust law, you no longer have ownership of assets in a trust account after establishing an irrevocable trust.
Revocable and irrevocable trusts also have differences when it comes to tax consequences. Since the trust estate is still yours, you’ll have a tax liability for a revocable trust, and it’ll be part of your tax returns. This means you’ll pay taxes for the assets held on trust, which may include estate taxes, income taxes, and inheritance taxes. In contrast, the taxes of an irrevocable trust applies to the trust itself.
Consult with a reliable trust attorney to determine whether a revocable or irrevocable living trust will fit your estate plan.
Benefits of Revocable Living Trusts
There are several advantages when you create a trust as part of your estate plan.
- Revocable trusts allow you to have control over your asset. Since you can make changes at your discretion, you’ll be able to protect assets held in trust as you see fit.
- Revocable living trusts lets you have several measures in place. A living trust has measures that automatically take effect when you die or when you become incapacitated. Not only can a revocable trust account for guardianship or conservatorship, but you can also indicate specific instructions for the trust administration to reflect your last wishes.
- A revocable living trust will avoid probate and prevent contests. While creating a trust may seem to require more effort and funds than a will, it will save your family time and expenses down the line. The successor trustee can administer distributions better without probate, and trusts tend to hold up better to contests than wills do.
- A revocable trust grants more privacy compared to a will. Wills become public records after your death, but trusts don’t. This lets you protect both the trust estate as well as the inheritors named in a trust.
If you’re looking to set up a trust, our trust and estate planning attorney can help you determine the best way to protect your assets and secure your family’s future. Contact us at The Dodds Law Firm and get started on your estate plan today!