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A Trust is one of the safest methods of estate transfer to your designated beneficiaries. It allows another party (the Trustee) to act on your behalf as the authority to your assets. Most people choose to set up a Trust to avoid Probate, and help ease burdens to heirs and/or to plan for incapacity. There are two categories of Trusts: Irrevocable and Revocable (or Living Trust). A Living Trust can act like a Will, even replace a Will, and shelter your beneficiaries from any creditor attacks, taxes and legal problems. With a Living Trust you can make changes at any time. However, an Irrevocable Trust will not allow any changes, but does give maximum protection to your estate, while also avoiding Probate.

Trusts can be set up in many ways and specify exactly how you’d like your estate transferred. A Trust can also allow you maximum control over your estate in life and in death. Some may need a Trust just to protect life insurance from estate taxes, or manage assets, or protect someone with special needs or to simply protect a family member who isn’t financially responsible. Trusts can be designed to meet many specific purposes and concerns. In the long run, Trusts can be more affordable than a Will, as they can avoid the costly Probate Process. Let’s dive deeper into the benefits of both types of Trusts and what may work best for your needs.

Revocable Trusts 

Revocable Trusts are typically managed for your benefit, while you also retain certain rights over the Trust. You can name additional beneficiaries who will inherit from the Trust after you pass away. If you’re thinking about the next generations of your family or you’re getting older and want some help managing your assets without giving up control, this might be the right Trust for you. In most cases, you would also be a Trustee and at least one of the beneficiaries with a Revocable Living Trust. You would also name another Trustee, called a “successor Trustee” to provide for you and follow your wishes should you ever become disabled or mentally incapacitated. This avoids the necessity of having a court name a conservator or financial guardian to take over financial affairs when you are unable manage them. The successor Trustee can also assist in the event you need more help as you age. You can retain the right to act alone while having your successor Trustee named as a co-Trustee available to help as well. Then, should your health decline, the co-Trustee can take over totally without disruption.

Another common reason to establish a Revocable Trust is to avoid Probate of your assets. If properly funded, a Trust can negate the need for Probate and prevent the details of your estate from becoming available to the public.

Irrevocable Trusts 

Irrevocable Trusts usually move assets out of your name and your control, for the purpose of eventually being transferred to the next generation. This also reduces the value of your estate for tax purposes and provides protection from creditors and lawsuits.

Irrevocable Trusts have also been used to help with Medicaid eligibility because they avoid the necessity of “spending down” assets. You typically shouldn’t serve as Trustee when you form an Irrevocable Trust, nor can you take your property back after you transfer it into an Irrevocable Trust. You can’t make changes or dissolve Irrevocable Trusts either. Unlike a Revocable Trust, where you reserve the right to dissolve or change the Trust at any time (as long as you’re mentally competent), an Irrevocable Trust can live on for several years and in some states like Tennessee, forever.

An Irrevocable Trust can be designed to protect your assets from income or estate tax. It generally cannot be amended or changed once it has been finalized absent court approval. Simply put, an Irrevocable Trust is an easy way to save money on estate taxes and protect you from creditors, however, the cost of doing so in most cases, is giving away the asset and control.

Advantages of Irrevocable Trusts include:

  • Once transferred, assets are no longer considered to belong to the Trustor
  • Protection from creditors, lawsuits, and bankruptcy laws
  • Not typically counted as part of the value of your estate
  • Reduction of taxes on your heirs
  • Prevents the misuse of your assets
  • Generally, cannot be altered outside of the statutory procedures allowed

Connect with our estate planning attorneys to find out how we can build a custom Trust for you.