A trust can be a powerful tool in your estate planning efforts. Your estate plan is a clear symbol of the time and care you have poured into protecting your financial legacy and passing it to those you love – in accordance with your wishes. When you understand what trusts have to offer, it can help bolster your peace of mind in relation to your ability to continue caring for your family members once you’re gone. Turn to a trusted online estate planning platform for the skilled guidance and safe document storage you are looking for.
A trust is what is known as a fiduciary arrangement, and a fiduciary is a third party who manages money, property, or both for someone else. A fiduciary is required by law to manage the other person’s assets in accordance with their best interests – and not with the fiduciary’s own. In a trust, the third party is called the trustee, and their job is to hold assets on behalf of the named beneficiaries until the time comes for them to be distributed.
Trusts generally avoid the lengthy and legally complex probate process, which means that the assets you include in the trust will flow directly to the beneficiaries whom you name. There are two primary kinds of trust – revocable and irrevocable – and better understanding the distinction between the two can help you better address your needs.
There are many kinds of trust instruments, but they all break down into either revocable or irrevocable trusts.
Revocable trusts are often called living trusts, and they allow those who create them – the grantors – to retain control of the assets included in the trusts over the course of their lives. Revocable trusts are very popular for their flexibility and for the fact that grantors can alter or dissolve them at any time. This means that if your intentions in relation to your estate plans or your circumstances change over time, you have the right to modify your trust accordingly – or to scrap it altogether.
You can name yourself the trustee of the revocable trust you create, which means you can retain complete control over it throughout your lifetime. You will, however, need to name a successor trustee who will take over in the event of your death or incapacitation. Upon your death or incapacitation, your revocable trust becomes irrevocable, which means that alterations are no longer a possibility.
Revocable trusts can keep everything included in them out of the probate process, but if your estate is very large, the assets will remain subject to estate taxes.
An irrevocable trust generally transfers the assets included in it out of your estate and into a separate financial entity, which typically shields them from both estate taxes and the probate process. Once created, however, an irrevocable trust cannot be altered by you. Once you execute an irrevocable trust, you let go of control over the attests therein and lose the ability to change terms or to do away with the trust. Irrevocable trusts can only be altered if the named beneficiaries agree to the changes.
Irrevocable trusts are usually implemented in those instances when the estates are so large that federal estate taxes apply – and the creator is attempting to shield the included assets from heavy taxation. The increase in value of the assets included in the irrevocable trust is similarly protected from taxation, but once these assets are distributed, the beneficiaries generally experience tax consequences.
Another important use of irrevocable trusts is addressing the needs of a child or loved one with disabilities who requires ongoing care. An irrevocable trust helps to ensure that this dependent will have the resources necessary to provide for their care into the future.
Irrevocable trusts are generally reserved for highly specific situations like those outlined above. Revocable trusts afford far more flexibility and come with all the following benefits to recommend them:
There are many important reasons for creating a trust, and an online estate planning platform can connect you with the tools you need to get the job done effectively and efficiently while skipping the immense expense and time-consuming process that are associated with estate planning attorneys.
TrustHandled is an online estate planning platform that has the tools and careful instructions to address all your estate planning needs, including the creation of both revocable and irrevocable trusts. We streamline the process and provide clear forms, templates, and instructions – all while ensuring that your estate planning documents are stored securely online, which means they will be ready and easy to access when it’s time for them to be implemented.