You don’t have to be wealthy to benefit from the use of revocable and irrevocable trusts. A trust is a legal arrangement by which one person transfers his or her assets to a trustee who will hold those assets in trust for third parties, explains the Stamford Advocate’s article “Trusts are not for the wealthy only.” As the person who created the trust, referred to as “the settlor,” you determine who the trustee is, as well as naming the beneficiaries.
There are many different types of trusts which serve different purposes. However, the two basic categories of trusts are revocable (also known as “living” trusts) and irrevocable trusts. Their names reflect two chief characteristics: the revocable trust can be changed and controlled by the settlor. The irrevocable trust cannot be changed, and the settlor gives up the control of the trust. However, it should be noted that the irrevocable trust has certain tax and other benefits not offered by the revocable trust.
A will is definitely necessary to pass assets on according to your wishes, but a trust can serve other purposes. Here’s a look at some common reasons why people use trusts:
- Protect assets from creditors
- Allow heirs to avoid probate of assets in the trusts
- Avoid, minimize, or delay estate taxes, transfer taxes, or income taxes
- Control how assets are disbursed or invested
- Facilitate business succession planning and manage business assets
- Shelter assets for descendants if a spouse remarries
- Establish a family tradition of philanthropy
Trusts allow assets to be passed on quickly and privately while eliminating some expenses for heirs. They also permit closer management of who will benefit from your assets.
The cost of setting up a trust depends on the complexity of the trust and the estate, as well as other factors, like the number of beneficiaries and how many generations are being planned for. Bear in mind that the cost of setting up a trust should be measured against the future cost of not just taxes, but any litigation that might occur if the estate is probated and becomes public knowledge, or if family members are dissatisfied with the distribution of assets.
An estate planning attorney can help first determine what kind of trusts are needed for your estate plan to achieve your wishes. Discuss the role of a Special Needs trust if any family members have mental or physical needs that make them eligible for public assistance. An experienced estate planning attorney will know which planning strategies are best in your unique circumstances. Contact us today to see how we can help.