When you’ve worked hard your entire life and amassed considerable wealth, it is only sensible that you pass down as much as possible to the people and causes you care about. One of the estate planning tools you can use to manage and pass down your estate to your loved ones is a trust.
Trusts are broadly divided into two categories: revocable and irrevocable trusts. Understanding how each type of trust works can help you make informed decisions during your estate planning process.
Understanding a revocable trust
A revocable trust, also known as a revocable living trust, is amendable. Thus, you may change or amend certain provisions of the trust at any point during your lifetime as long as you are mentally competent to lawfully initiate such amendments. Such changes may include adding or removing assets and beneficiaries or redistributing assets to your beneficiaries. It also means that you can terminate the trust if it no longer meets your estate planning goals.
These are three instances when setting up a revocable trust may make sense:
- When you want the flexibility to amend your trust as you wish
- When you want to protect your assets from going through probate
- When you want to avoid interruptions in managing your investments
A revocable trust does have its drawbacks too. For instance, it does not protect your estate from creditors and income and estate taxes. As a result, you’ll want to consider your options carefully before committing to an approach.
Understanding irrevocable trusts
An irrevocable trust, as the name suggests, cannot be amended, terminated or changed without involving the court or seeking the beneficiaries’ consent. In other words, once you set one up, you will lose control over the assets held within it. If you are specifically looking to protect your estate from creditors and estate taxes, then an irrevocable trust may be right for you.
Safeguarding your interests
A properly executed trust can give you peace of mind knowing that your assets will be distributed according to your wishes. Learning more about the different types of trusts can help you realize your estate planning goals as efficiently and effectively as possible.