Were you aware of the fact that there are many different types of trusts in estate law? For example, a marital trust can be a legal arrangement that transfers assets to a surviving spouse after the trustmaker’s death. A credit-shelter trust allows married couples to take full advantage of state and federal estate tax exemptions. A “QTIP” trust protects children in blended families.
All trusts do, however, essentially fall into one of two categories: revocable or irrevocable. Determining which one is right for you will depend on your circumstances and estate planning goals. Let us share a bit more information about these forms of trusts to help you begin to decide what could work for your unique situation.
With a revocable trust, the person making the trust, or the grantor, retains control of the terms of the trust, and thus, the assets he/she puts into the trust. The grantor can change the terms of the legal arrangement whenever he/she wants, including changing trustees and beneficiaries.
A key benefit to a revocable trust can be built-in protection from physical or mental incapacity in the form of a successor trustee. A person with early onset Alzheimer’s Disease, for instance, would be especially protected. When the grantor dies, however, the revocable trust automatically becomes irrevocable. In other words, it cannot be changed after death.
By contrast, an irrevocable trust can require giving up both ownership and control of trust assets. Once a grantor places property into an irrevocable trust, the trust owns it, and the grantor no longer has the direct authority to make changes (though naming a spouse as beneficiary can provide indirect access). There are only a limited number of circumstances where an irrevocable trust may be changed, but this is a strategy that needs to be carefully planned for and drafted with an experienced estate planning attorney.
Why would someone give up control of his or her assets by placing them in an irrevocable trust? Doing so has several advantages. One key benefit is protection from lawsuits. If someone were to sue you, this person would have a reduced chance of accessing these irrevocable trust assets because you do not technically own them. The trust does. Additionally, since you do not own them, you may not have to pay personal taxes on them, either. This can also create low reportable income and wealth figures that in turn allow for admission into government support programs with strict eligibility requirements.
Unlike wills, both revocable and irrevocable trusts can avoid probate court, which, by itself, is a huge benefit for grieving families. Determining which trust is right for you may be a complicated decision with far-reaching consequences. Know that you do not have to make the choice alone. If you or someone you know would like more information, please contact our office to schedule a meeting.