Trusts: An Important Part of Your Estate Plan
A trust is one of the most crucial components of a successful estate plan. and they come in numerous forms. Trusts may be revocable, otherwise known as a “living trust,” or irrevocable. Both hold assets, designate your beneficiaries, and designate a trustee to manage the trust for the economic benefit of your beneficiaries. Assets in a trust will most of the time avoid the probate process and the associated fees.
Most estate plans revolve around a revocable trust. This type of trust is able to be modified or revoked at any time by the settlor, the person who creates the trust.
Benefits of a Revocable Trust:
• Revocable trusts prevent your estate from going into probate.
• The settlor can take back the property in the trust if desired.
Irrevocable trusts require the settlor to completely surrender control over the property once the trust is made.
Benefits of an Irrevocable Trust:
• Many irrevocable trusts pay income tax as a separate entity.
• The settlor often does not pay personal income tax on the trust income, so in some cases, the settlor can use an irrevocable trust to move to a lower tax bracket.
Besides the distinction between revocable and irrevocable trusts, trusts are also classified by what they are established for. For example, there are special needs trusts established for the benefit of a disabled or elderly person who receives government assistance, and the principal purpose for the trust is to preserve those government benefits. Charitable trusts allow for the settlor to contribute money to charitable pursuits and do not require a specific beneficiary to be named. Spendthrift trusts are an option for giving a gift to a beneficiary who is not good with money or has trouble with creditors. A spendthrift provision prevents the beneficiary from assigning or selling his or her interest in the trust and also gives the trustee discretion to withhold disbursements to the beneficiary.