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What should you know about trusts when planning your estate?

On Behalf of | Jun 25, 2024 | Estate Planning

There are several components of estate planning that you need to think about when determining what will happen to your assets after you die. While many people focus on their will, you may also want to think about adding one or more trusts to your broader plan.

A trust is a legal tool that’s used to hold assets and distribute them. You can use a trust to distribute your assets once you pass away. There are two main categories of trusts – revocable and irrevocable. While these serve the same general purpose, they have some differences.

How are these trusts the same?

Revocable and irrevocable trusts both allow trust assets to bypass probate. This enables your beneficiaries to get the inheritance faster than what’s possible if they have to go through the probate court because the assets must be distributed per the terms of a will. Both types also provide privacy for the beneficiaries. Since they don’t have to go through probate, the terms of the trust aren’t part of the public record.

How do they differ?

Revocable trusts can be changed or cancelled whenever you want. Irrevocable trusts can only be changed or cancelled in limited circumstances if the beneficiaries or court agrees to the changes or cancellation.

Once you place assets in an irrevocable trust, they aren’t part of the estate anymore. This can help to reduce the value of your estate, which can reduce estate taxes. Assets in a revocable trust remain part of the estate, so they’re taxable as part of the estate.

Only assets in an irrevocable trust are protected from creditor claims. When you transfer assets into an irrevocable trust, the trustee controls them. Because of this, creditors can’t stake a claim to those assets if they sue you.

Creating a comprehensive estate plan can provide you with peace of mind. It can also give your loved ones clear instructions for what you want to happen with your assets after you die. Working with a legal representative who can assist with getting everything set up can help to ensures that your wishes are clearly articulated and enforceable accordingly.