Trusts are a fundamental component of many estate plans, offering a range of benefits for managing and protecting assets before and after death. They can provide greater control over how assets are distributed, potentially reduce estate taxes and offer privacy that’s unavailable through a will.
Understanding the distinct advantages of different types of trusts is vital in determining how to incorporate them into an estate plan.
Benefits of irrevocable trusts
An irrevocable trust can’t be easily altered, amended or terminated once created. One of the primary benefits of an irrevocable trust is the potential for significant estate tax savings. Since the assets placed into an irrevocable trust are effectively removed from your estate, they aren’t subject to estate taxes upon your death. This can be particularly advantageous for individuals with large estates.
Irrevocable trusts offer asset protection from creditors and legal judgments because the assets in the trust aren’t considered your personal property.
This type of trust is also helpful in Medicaid planning because assets in an irrevocable trust may not be counted towards your personal assets when determining Medicaid eligibility.
Benefits of revocable trusts
Revocable trusts, also known as living trusts, are more flexible than irrevocable trusts because they can be altered or terminated anytime during your lifetime. One of the key benefits of a revocable trust is the avoidance of probate. Assets held in a revocable trust bypass the probate process, allowing for a potentially quicker, more private and less costly distribution of assets upon your death.
Revocable trusts also offer a seamless transition of asset management in the event you become incapacitated, as the successor trustee can take over management of the trust assets without the need for court intervention.
Ultimately, trusts are a valuable tool that may be integrated into a comprehensive estate plan. If you are interested in setting up a trust for any reason, seeking personalized legal guidance can help to ensure that your approach is structured to best meet your needs and goals.