Estate planning is one of the most important things you can do in order to make sure your assets go to who you want and the process of transferring your assets is easier and less costly for your loved ones. Without a properly drafted estate plan stating your wishes, your assets may not go to the person or persons you want or they may be distributed according to State law. With simple estate planning, this can be avoided. And part of your estate plan requires looking at revocable living trusts and irrevocable trusts and determining which one is right for you.
The estate planning document you will most likely have prepared for you is a living trust. Like a will, a living trust states your wishes as to the distribution of your assets and enables your successor trustee to carry out your instructions when you die or become incapable of managing your trust assets. A living trust is especially appropriate for individuals who have real estate, personal property valued at more than $150,000, or complex financial circumstances.
The greatest advantage of a living trust as opposed to a will is that it eliminates the lengthy and expensive process of probate. Probate can take years to assess the property, pay taxes and outstanding debts, and distribute the remaining assets to the designated beneficiaries. Fees payable to attorneys and personal representatives are dictated by law and typically are based upon the gross, not net, value of your estate, and can eat up tens of thousands of dollars of your estate. And a trust, unlike a will, does not need to be filed with the Court which protects your family’s privacy.
There are two types of living trusts: Revocable and Irrevocable. A revocable trust, by its nature, offers a lot of flexibility. The trustor (the person who creates the trust) keeps control of the assets, and has the ability to revoke or amend the trust at any time during his or her lifetime and while they have legal capacity. The trustor still owns and controls the property in the trust and when the trustor passes away, the assets are easily transferred to the intended beneficiaries without the need for probate.
Irrevocable trusts are less commonly used than revocable living trusts, but have some advantages over revocable living trusts—mainly tax benefits and protection from creditors. However, by its design, an irrevocable trust cannot be terminated, amended, or modified at any time. It is irrevocable in every sense of the word. Once the trustor transfers assets into an irrevocable trust, they give up control of those assets for their lifetime.
Since an irrevocable trust requires you permanently give assets away during your lifetime, those assets—whether real estate, money, investments, or other property—may be protected from the trustor’s creditors. There may also be significant tax advantages (but talk to a CPA before transferring your assets into an irrevocable trust). There can be some disadvantages to the irrevocable trust, such as taxable income derived from assets in the irrevocable trust is payable by the trust, though typically at a higher rate than individuals pay. However, properly created, funded and managed irrevocable trusts can offer asset protection from creditors and Court judgments, as well as allow for tax advantages.
No one likes to think about their death or the death of a loved one, but with proper estate planning you can ensure your family and property are taken care of according to your wishes. By preparing a trust, whether revocable or irrevocable, you ensure your estate is distributed according to your wishes and you avoid the hassles and costs associated with probate.
Talk to an experienced estate planning attorney today and find out more about creating a revocable living trust or an irrevocable trust and determining which one is right for you.
I am estate planning attorney Eric Rudolph with the Law Offices of Eric A. Rudolph. We specialize in estate planning and trust & estate administration. Please call us at 760.702.4046 or e-mail Eric directly at firstname.lastname@example.org for more information.