As explained by U.S. News & World Report, trusts can benefit people at all levels of wealth. They are a great addition to estate plans because they provide more control over the distribution of assets to heirs. They also offer many other benefits, including protection against taxes.
When estate planning, you will need to decide between a revocable and irrevocable trust. This guide explains the difference between the two, so you can make the best decision.
Revocable trusts are often used to avoid probate. This is the process of proving a will valid, paying off debt, and finally passing assets to heirs. By placing assets into a revocable trust, they pass along immediately to heirs after your death, without the need for probate.
Once developed, the creators of these trusts can change them as they see fit. That means they can remove assets or change the terms of the trust. For example, many people who use trusts to pass assets along to children implement age restrictions on when the child can receive the inheritance.
Unlike revocable trusts, grantors cannot change irrevocable trusts after creation. While this may seem like a drawback, it actually offers quite a few benefits. Because the grantor no longer owns the assets or property placed into the trust, they do not need to pay taxes on them. They can also rest assured that creditors cannot seek out these assets in an attempt to recoup the debt, as the grantor no longer owns the assets.
Most people are well-served by revocable trusts, as they offer flexibility when it comes to your assets while you are still alive. However, people with considerable wealth or those that face certain financial liability issues often choose irrevocable trusts for an added layer of asset protection.