A trust is used to transfer wealth in estate planning. For example, instead of just naming beneficiaries in your will, you can use a trust to pass down your assets to a beneficiary. The trust will not be disrupted, nor will assets be subject to probate when the grantor of the trust passes away.
In addition, if the beneficiaries are not of age or not trustworthy with money, you can specify at which age to hand over the money and even divide it into recurring distributions through the person’s life.
Revocable Vs. Irrevocable Trusts
There are two kinds of trusts: revocable and irrevocable.
With revocable trusts, you can change the assets that remain in the trust, alter the beneficiaries according to birth, death, divorce, and marriages, and modify stipulations of the asset distribution. You have more freedom with a revocable trust. But there are some disadvantages.
If you were to be sued or a creditor comes after you for money that you owe them, they can have access to the assets in the trust. Also, when the trust's grantor dies, all the assets inside the trust are subject to estate taxes.
On the other hand, irrevocable trusts come with less flexibility. Once the assets and rules of the trust are set, they cannot be changed. For example, if the grantor’s child is no longer responsible for taking on a large sum of money, the terms of the trust cannot be changed.
The advantages of an irrevocable trust are that a lawsuit or creditor cannot touch the assets in the trust, and the assets are not subject to estate taxes at the time of the grantor’s death. Those in a vulnerable position for being sued, like a medical professional, can use an irrevocable trust to protect their assets.
If you have questions about estate planning and trusts, we want to help you find the best benefits for you. For example, would you benefit from a revocable or irrevocable trust? Contact our Miles & Hatcher, LLP, team to weigh the pros and cons. Call to schedule a free consultation: (909) 481-4080.