Some Americans can limit their estate planning to an online form. Others, however, have substantial taxable assets, complex family or financial situations, or other complications. If you fall into the latter camp, you’ve run across a more diverse array of estate planning devices. Having a clear understanding of what each can and cannot do will help you make the most appropriate decisions for your own estate.
What is the difference between a will and a trust?
Both a will and a trust are legal estate planning documents that can be executed together or individually, depending on your purpose. Both a will and a trust establish your wishes regarding the management of your property. However, a will goes into effect after you die, whereas a trust, also known as a living trust, becomes valid from the moment it is created. Your will covers all property in your name when you die while a trust only covers assets specifically identified by the trust. Finally, a will must go through probate, and it then becomes part of public record. A trust, on the other hand, passes outside of probate, meaning a trust can remain private.
Do I need a will or a trust?
In some cases, both a will and a living trust are in order. For example, a will can be used to name a guardian for your children or to plan your funeral arrangements. A trust cannot do either of these things. However, a trust can offer a way to reduce the impact of taxes on your estate and to plan for an unanticipated incapacitation.
What’s the difference between a revocable and an irrevocable trust?
A living trust can be either revocable or irrevocable, and the names offer insight into the difference between these two devices.
The terms of a revocable trust can be revised or even canceled by the grantor. Any income earned during the life of a revocable trust goes to the grantor, passing to beneficiaries only after the grantor’s death.
An irrevocable trust cannot be modified, amended or canceled by the grantor without permission from the beneficiary. In other words, once assets are transferred to an irrevocable trust, they are no longer the property of the grantor.
What are the benefits of a revocable trust?
A revocable trust allows you to maintain complete control over your listed assets throughout the full term of your life. The designated trustee only takes over responsibilities if you are incapacitated.
What are the benefits of an irrevocable trust?
You may wonder why anyone would choose to give up rights of ownership to her assets by transferring them to an irrevocable trust. In fact, these trusts offer several unique advantages, and they all stem from the same logic. When you transfer assets into an irrevocable trust, you transfer them out of your estate. If they are no longer legally your property, they are no longer subject to the same potential losses that your property is subject to. For example, assets in your revocable trust are exempt from creditors and lawsuits. Removing assets from your estate to a revocable trust may also reduce estate taxes and capital gains taxes.
Planning an estate secures your family’s future and safeguards your wishes regarding important matters surrounding your legacy. Call the Law Offices of Jeffrey Lohman to discuss your estate planning needs today.