If you are thinking about the future and planning for it financially, you may realize there is a lot to learn about your options. Having a will in place may not meet your goals for providing for your loved ones and protecting your wealth. Therefore, you may be considering adding a trust to your estate plan. A trust can offer certain benefits a will cannot, but you may not know that you have two distinct choices when it comes to the type of trust you want to establish.
A trust is an important estate planning tool into which you can fund your assets to protect them from certain negative ramifications. A trust can either be revocable or irrevocable, and choosing which form to use can be a complex decision. Each type of trust has its unique benefits, and each comes with disadvantages it is wise to consider carefully.
Revocable trusts have good and bad points
Since the trust effectively becomes the owner of your assets, your special circumstances will best determine which type will work for you. For example, if you decide on a revocable trust, you maintain control over the assets which you fund to the trust. You may add or remove assets as you wish, so you always have access to your property. Additionally, the terms of your trust go into effect immediately after your passing or if you should become incapacitated.
However, the flexibility of the revocable trust can also be a disadvantage. Because you maintain access to the funds and properties you have funded to the trust, your estate may not escape any tax burdens attached to those assets. Additionally, those funds are not safe if you fall into trouble with creditors.
Irrevocable trusts for more protection, less flexibility
Once you title assets to an irrevocable trust, they remain in the trust and are no longer part of your estate. This may seem like a downside, but it is actually the main reason why some people choose this type of trust. The assets now belong to the trust permanently, so they are not on the table for creditors, and they are not included in the value of your estate when it comes to calculating taxes.
You can create terms of the trust to benefit your heirs, but any assets funded to an irrevocable trust are no longer at your disposal for personal use. If this is a factor that seems frustrating to you, an irrevocable trust may not be in your best interests. However, before making a decision about either type of trust, it is wise to obtain as much information as possible and to discuss your personal circumstances and goals with an experienced estate planning professional.