In estate planning, trusts can be established to easily transfer certain assets to heirs when options like designating a beneficiary aren’t able to do the trick. With the right setup, assets in a trust can avoid probate and taxation, and immediately pass from the original owner to the heirs. That’s all well and good, but what type of trust is best for you?
The main types of trusts
There are many different types of trusts depending on the type of assets you’re trying to protect. There are living trusts, which are immediately effective upon creation, and testamentary trusts, which become effective after your death.
There are also revocable trusts, where you retain ownership and control of the property and can change the terms of the trust, and irrevocable trusts, where you no longer own or control the property, thus making you unable to enact changes to the trust.
Choosing a funding method that supports the goals of the trust is something that you should decide with the help of a qualified estate planning attorney. Transferring property to an irrevocable trust requires that a formal transfer of property be completed, meaning that the property must be retitled in the trustee’s name. Keep in mind that trusts are legal entities, and the trust itself is subject to taxation on the property that is being held. Trust tax brackets are compressed, so relatively small amounts of income will push the trust into the highest tax bracket. An estate planning attorney can help you complete and manage a retitling of property.
Reasons for choosing a revocable trust vs. an irrevocable trust
It depends on the goals you’re trying to establish. For example, if the primary goal is to avoid excessive estate taxes, you will likely want to set up an irrevocable trust. If you want to be able to make changes while you’re still alive, you might want a revocable trust. In addition, the rules of the particular trust you’re establishing may dictate whether a trust must be revocable or irrevocable.
If you’re unsure about the type of trust you want to establish – or whether you need a trust at all – you should consult a licensed estate planning attorney in your state.
Would you be worried that property or assets you put in an irrevocable trust are no longer yours to manage?
This article is provided by Everplans — a life and legacy planning company dedicated to transforming the way people get their families organized. For more information, visit: everplans.com
Neither Transamerica nor its agents or representatives may provide tax, investment, or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.