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Living trusts and estate planning

On Behalf of | Dec 30, 2022 | Estate Planning |

Not everything in estate planning is concerned with what will happen to your property after you die. Estate planning can also be a part of your life. This is particularly true in the case of living trusts.

As implied by their name, living trusts go into effect while a person is still living. They can protect assets while the person is still alive, and continue to protect them after the person is gone.

Avoiding probate

When you establish a living trust, you put your assets under the control of a trustee. The trustee manages the assets for the benefit of the beneficiary.

You can name almost anyone you want as a beneficiary, but it’s common for people to name themselves as beneficiary, and their loved ones as successor beneficiaries. This way, they have some access to the assets in the trust while they are alive, but after they die, the assets don’t have to go through probate. This is because the assets belong to the trust and not to their estate.

Revocable and irrevocable trusts

The two main categories of living trusts are revocable and irrevocable. Once again, the names give away the major distinction between the two. A person who establishes a revocable trust can alter the terms of the trust or even revoke it altogether. A person who establishes an irrevocable trust cannot.

This distinction is important in some key ways.

An irrevocable trust is a good idea for a person who anticipates that their financial goals may change in the years ahead. For example, a middle-aged person might want to have a trust as part of their estate plan, but not feel ready to give up unlimited access to their assets.

However, the assets in a revocable trust may also be accessible by the person’s creditors and the IRS.

That’s not the case with an irrevocable trust. Irrevocable trusts provide superior protection from taxes or creditors. However, the tradeoff here is that it’s also very difficult for the grantor or the beneficiaries to access funds in an irrevocable trust.

Either type of trust can provide you and your loved ones with advantages, but you will have to consider which type meets your needs. Attorneys help people understand their options when planning their estates and protecting their assets.