When creating an estate plan in the Harlingen area, one can use a variety of provisions to protect assets, such as trusts. Trusts not only allow you to minimize probate court’s involvement, but you can also use them to prevent your loved ones from mismanaging your assets. Two common types of trusts that many people use in estate planning are irrevocable and revocable trusts. The rules governing them vary. When structured properly, irrevocable and revocable (living) trusts can provide many benefits for a testator’s estate while she or he is living and long after she or he dies.
Revocable and irrevocable trusts have specific purposes. More than intent is necessary to structure them properly. To ensure your estate plan gains full benefits, take some time to review the main differences between revocable and irrevocable trusts.
What is a revocable trust?
A revocable trust allows you to make provisions for your assets while you are alive. You may live longer than expected or develop a mental or physical condition that incapacitates you, rendering you unable to make legally sound decisions regarding your assets. This type of trust protects all named assets from probate. You can use it to ensure your assets pass directly to your heirs, privately (without becoming public record) while you are living.
For a revocable trust to be enforceable, you must name a successor to take over and manage your estate in the revocable trust. You become the grantor and your successor the trustee. Ideally, this individual should be someone you trust implicitly. You can transfer assets to and from the trust, change beneficiaries and make other changes to a revocable trust as long as you are alive and have the mental capacity to do so. Once you die, all revocable trusts become irrevocable.
What is an irrevocable trust?
Once you create and fund an irrevocable trust (add assets to it), you cannot remove them or change the parameters you have in place for all named beneficiaries in the trust to receive their inheritances. Assets transferred to an irrevocable trust are no longer part of an estate. This helps to reduce estate taxes and provides additional legal protections. You cannot reassume the role of the trustee. All actions created by an irrevocable trust are undoable.
Both revocable and irrevocable trusts have advantages and disadvantages and can ultimately affect what happens to your assets and estate. Use them wisely to maximize the strength of your estate plan.