Trusts are often an important tool used in the creation of an estate plan given the versatility and variety offered by a trust. At their core, all trusts are the same. You, as the trustor, must name at least one beneficiary, appoint a trustee to manage trust assets and designate assets that you will use to fund the trust. Beyond the basics, trust can be as complicated, or as simple, as your needs require. The first decision you must make is whether to create a revocable or an irrevocable trust.
A revocable trust offers two important benefits. First, asset properly titled in a revocable trust do not have to pass through probate when you die. Probate is the legal process that is often required to inventory your estate, pay debts of the estate, and finally transfer assets after your death. By avoiding probate, the trust assets will be accessible to beneficiary much sooner after death. A key feature of a revocable trust is that you can amend the trust or even terminate the trust at any time.
Like a revocable trust, assets in an irrevocable trust also avoid the probate process. Unlike a revocable trust, however, an irrevocable trust also offers asset protection, capital gains and personal income tax benefits, and the avoidance of estate taxes. Although an irrevocable trust offers advantages that a revocable trust doesn’t, there are downsides. A big disadvantage to an irrevocable trust is that once created, you are locked into the terms of the trust. In addition, your access to the assets in the irrevocable trust will, at a minimum, be limited to some extent. Due to these limitations, irrevocable trusts are generally reserved for advanced estate planning and/or specialized planning needs.
The best way to sort out how these trusts work and which are the best for your situation and goals is to work with an experienced and qualified estate planning attorney.