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What should you know about trusts?

On Behalf of | May 17, 2024 | Estate Planning |

Estate planning is a major task that all adults need to address. While most people know that they should create a will, some may not realize that trusts are useful for more than just wealthy individuals.

If you decide to create a trust, you’ll have to determine what type of trust meets your needs. All trusts are classified as either revocable or irrevocable. Some benefits of trusts generally, such as offering privacy for beneficiaries and facilitating an easy transfer to them, are features of both. Other benefits are specific to a particular type of trust.

What is a revocable trust?

A revocable trust is one that can be changed or canceled if you don’t want to the terms to remain as they are. This offers you flexibility to change things as situations in your life change. The downside to these is that the assets in the trust remain part of your estate, which can have tax implications. Those assets aren’t protected from creditor claims since you retain control over them.

What is an irrevocable trust?

You can’t change or cancel an irrevocable trust once it’s established and funded. The only exception to this is if the court or your beneficiaries agree to the changes or cancelation of the trust. Because you don’t retain control of the assets once the trust is funded, they don’t count toward the value of your estate, which can have tax benefits. This also means that the assets can’t be claimed by creditors.

What else should you know?

There are various types of trusts that serve different purposes. For example, a generation-skipping trust is an irrevocable trust that lets you give your grandchildren assets without having to pass them through to your children first. A special needs trust is another type of irrevocable trust. It lets you care for a loved one who uses needs-based programs to get the care they need.

Creating a comprehensive estate plan is critical for all adults. Working with a legal representative who can assist with setting yours up in a legally enforceable manner can help provide you with peace of mind.