There are many challenges that must be considered when you’re creating an estate plan. While many people think about their will as the best way to transfer assets to their loved ones, trusts are sometimes a better option.
There are two primary categories of trusts – revocable and irrevocable. Learning a bit about how these work can help you to determine what you should do with your assets.
Control over the trust
One of the biggest differences between revocable and irrevocable trusts is that you can change the terms of a revocable trust but you can’t change the terms of an irrevocable trust. This one distinction between these two types has to do with the type of control you’ll have over either option.
If you establish a revocable trust, you’ll retain control over the assets in the trust. You can do as you please with the trust, including dissolving it. This approach comes with some drawbacks, namely that creditors can seek to be paid using the assets in this kind of trust since you still have control over them.
An irrevocable trust moves to the control of a trustee once it’s created. You won’t have any control of the assets after the trust has been established. If you want to change the terms of the trust, including completely dissolving it, you’ll have to seek a court order or the full agreement of the beneficiaries. In exchange for the loss of control over the assets in the irrevocable trust, you’ll gain tax benefits and protection from creditors.
Funding the trust
The protections of the trust are the strongest after the trust is created and funded. You must transfer the assets into the trust in order for it to be funded. Funding the trust may be costly, so that’s a consideration to think about when you’re creating your estate plan.
Trusts can be a valuable part of an estate plan, but only if they’re set up properly. It’s crucial that you clearly outline your wishes so that the legal professional who is helping you can ensure that they’re suggesting the correct type of trust to meet your needs.