Estate planning is important to ensure that a person’s property will go to a beneficiary he or she designates.
The person who wants to create a trust, called a grantor, can create a trust document, transfer assets into the trust and choose a trustee who is responsible for distributing the assets according to the grantor’s wishes. The trustee is a fiduciary which means that he or she must manage the trust assets with the best interest of the grantor and beneficiaries in mind.
A trust can be useful to avoid going through the probate process and it helps to keep the terms and the distributions private. Grantors may consider creating a revocable trust or an irrevocable trust. There are advantages and disadvantages to both types.
With a revocable trust the grantor can change the terms of the trust, can add trust property and can change the beneficiaries during his or her lifetime. One of the primary advantages of a revocable trust is that it provides flexibility. Also, the grantor can choose to limit the assets the beneficiaries can withdraw from the trust.
However, the assets in a revocable trust are available to creditors and when the grantor passes away, the trust assets may be subject to taxes.
An irrevocable trust is set in place once it is signed and most often, it can only be changed when it is required under the law or in other limited circumstances. Essentially, once an irrevocable trust is signed, the grantor no longer owns the assets.
However, an irrevocable trust can have tax benefits. The assets may not be part of the grantor’s taxable estate.
It’s important that the trust is drafted correctly and there is help available to do so.