Estate planning is essential for protecting your estate and ensuring it reaches the right beneficiaries after your death. Trusts and wills are used for fairly distributing the assets among the beneficiary as per the property owner’s instructions.
Many people aren’t fully aware of how beneficial trusts can be. However, trusts are not only effective in estate planning but can significantly reduce property taxes and help you settle the outstanding debts of the property owner. The estate attorneys use revocable and irrevocable trusts to plan the estate distributions. But what is the difference between revocable vs irrevocable trusts? To know this difference, you must get familiar with the fundamentals of trusts and how trusts work. To help you do that, here is everything you need to know about trusts.
What Is A Trust?
A trust is a legal relationship or agreement between two parties where one party holds the property for the other party’s benefit. It is created by a settlor, grantor, or a trustor who transfers the property to the trust. Trusts are made for the individual or a group of people called beneficiaries. The trusts must be managed to ensure their safety, liquidation, and transfer to the beneficiaries. Often a trust attorney, a group of professionals, or an organization manages the trust and the processes involved.
What Are The Types Of Trusts?
There are two types of trust- living and testamentary. Living trusts, also known as inter vivos, are formed during the settlor’s lifetime. On the other hand, testamentary trusts are established after the settlor’s death as the provisions requested by the settlor.
You must have also heard about revocable and irrevocable trusts. But what is the difference between revocable vs. irrevocable trusts? The trusts can take any of these two forms, and they are related to whether the settlor can change or revoke the trust after drafting it or not. Revocable trusts grant the settlor control of the assets and properties in the trust and reserve all the rights to change or revoke the trust at any time as per their wish.
Irrevocable trusts are the opposite of revocable trusts. The grantor or settlor loses all the rights to change or revokes the terms of trust and the rights to control assets once they form the irrevocable trust. If the settlor wants to change the terms or revoke the trust, they need to make an agreement with the beneficiary.
Why Do You Need Trust?
There are different benefits of having trust, and here are some of them.
- More control over estate: The settlor can define the trust’s terms that give the superior control over how their estate will be distributed after their death.
- Avoid probate: When an estate doesn’t have a trust, it is processed by the government as probate. These probates disclose the estate in public, and the result may not be the same as desired by the estate owner. Probates are time-consuming as well.
- Tax saving: Trusts can potentially reduce the estate tax payments.
Trusts effectively protect your assets from probates and ensure the estate goes to the right beneficiaries. You can hire estate planning attorneys to simplify the process and take care of all the legal procedures. That way, you can be assured of the correct distribution of your estate after your death.