Estate planning can include a variety of different tools to accomplish your goals. Every person should have a will, at the very least, in their estate plan. However, you might also want to consider other estate planning documents such as powers of attorney and trusts. Trusts can give you the tools you need to accomplish your goals in the most efficient and cost-effective way while protecting your property, your interests and your family’s future.
Using trusts in your estate planning
In your estate plan, you can choose from several trusts that provide numerous benefits. The type of trust you choose will depend on your goals and the circumstances of your unique situation. A living trust holds title to your assets while you are living. Living trusts can be either revocable or irrevocable. The reasons for setting up the trust and the goals you want to accomplish will guide you in deciding whether you want to make the trust revocable or irrevocable.
Utilizing a revocable trust
With a revocable trust, you are in control of the assets you transfer to the estate because you serve as trustee of the revocable trust agreement. At any time, you can end the trust and transfer the assets within the trust into your personal name. You are also free to modify the terms of a revocable living trust. A revocable trust obviously gives you the most control over what happens to the property being held by the trust.
Utilizing an irrevocable trust
With an irrevocable trust, the assets you transfer to the trust remain a permanent asset of the trust. You cannot revoke the trust, nor can you change the trust terms. The trust “owns” sole interest in the assets and the terms of the trust dictate how the assets are managed. In addition, the terms of the trust dictate how those assets are to be distributed upon our death. In some cases, the trust can continue to hold and manage the assets even after your death.
Are there advantages of using a trust?
Unless a trust offers benefits, there is no incentive to set up a trust and transfer your assets to a trust. Therefore, some of the advantages of using a trust in your estate plan include:
• Avoiding probate. Many people transfer their assets to a trust to avoid the need to file an estate with the probate court. Avoiding probate can reduce the amount of taxes your family must pay. It can also reduce the time it takes to transfer assets into the names of your heirs. Heirs can receive property much more quickly from the trust compared to waiting for distributions from a probate estate.
• Protecting property from creditors. With an irrevocable trust, your property could be protected from actions by creditors to collect debts. However, you should discuss whether an irrevocable trust provides this protection based on your specific situation before you transfer assets. Remember, once the assets are transferred to an irrevocable trust, you cannot undo the transfer.
• Avoiding challenges to a will. Some of your heirs might not like the terms of your will and decide to challenge your will in probate court. A challenge to a will can be costly and lengthy for all parties. However, when you place your property in a revocable trust, you manage the trust. Continuing to manage the trust under the terms of the trust can help establish you are of sound mind. It can also serve as evidence that the terms of the trust are exactly what you desired when you set up the trust.
• Prevent a conservatorship. If you become incapacitated for any reason and you are unable to manage your affairs, the court must appoint a conservator to manage your financial affairs. The exception might be if you have executed a Durable General Power of Attorney, naming an agent to manage your assets if you are unable to do so yourself. However, if you do not want to appoint a power of attorney, you can use a living trust to avoid the necessity of appointing a conservator by setting up the living trust with various terms and conditions that provide money and support for you and your family even though you are incapacitated.
Living trusts, like all other trusts, have both benefits and disadvantages. You should discuss the use of trusts with a professional before transferring assets into any trust agreement to avoid serious mistakes that could be costly and permanent.
Our office is available by appointment only, so to learn more, set up a free consultation by clicking Book an Appointment below to see our available appointment times, or call or email our firm at 601-255-0813 or [email protected].