There are many ways to approach estate planning. Most Americans are aware that a will provides a key role in managing their estates. Living trusts are another extremely powerful tool, often used in conjunction with wills, to ensure your beneficiaries receive your assets in a timely manner.
Living trusts can be a cornerstone in any estate plan. Living trusts can be distinguished into two main varieties:
- Irrevocable Living Trusts; and
- Revocable Living Trusts
The role of irrevocable trusts
Irrevocable trusts are the less flexible of the two main kinds of living trusts. As the name implies, you may not make any changes to an irrevocable trust once you create one. This is because anything that you put into an irrevocable trust is no longer your legal property. Once you fund an irrevocable trust, anything inside of it becomes the legal property of the trust.
There are two main advantages to irrevocable trusts:
- Avoiding Estate Taxes. The government generally may not apply estate taxes to assets inside an irrevocable trust since anything inside it is not your property.
- Avoiding creditors. For the same reason, creditors generally cannot touch anything inside an irrevocable trust.
To reap the benefits of an Irrevocable Trust, you must take care to ensure that your use of the trust is legal and proper: otherwise, you may forfeit the advantages of an irrevocable trust and the law may subject you to penalties.
The role of revocable trusts
Revocable trusts are the more flexible of the two main kinds of living trusts. In contrast with an irrevocable trust, you can make as many changes to a revocable trust as you like before you die. Anything in a revocable trust remains your personal property.
There are three main advantages to revocable trusts:
- Avoiding Probate. Proper use of a revocable trust generally allows your estate to avoid court probate, a lengthy, expensive, and confusing process for your Personal Representative.
- Greater Availability of Assets on Death. Revocable trusts generally allow your beneficiaries to receive your assets quickly since they do not need to go through probate.
- Increased Flexibility in Estate Planning. Revocable trusts generally afford more options to individuals to decide who receives their assets, when those assets are received, and the terms and conditions associated with receipt.
Using living trusts can ensure that you can manage your assets effectively, even after death.
Established more than 100 years ago, Quinlivan & Hughes ranks among the oldest and largest law practices in Central Minnesota. The full-service law firm has growing legal teams in the areas of employment law, business law, government law, insurance defense, trust and estate planning, and general litigation. Learn more at Quinlivan.com.
