For most people, a comprehensive estate plan includes numerous different strategies and incorporates a wide variety of estate planning tools. After a Last Will and Testament, which serves as the cornerstone of most estate plans, trusts are among the most common additions to an estate plan. Once used almost exclusively by the uber-wealthy, trusts have evolved to the point where even the average person can benefit from the addition of a trust or two in his or her estate plan. Of course you should discuss the addition of a trust with your estate planning attorney; however, some basic information about the different types of trust may get you started thinking about including one in your estate plan. An irrevocable trust, for example, can help your estate avoid both probate and gift and estate taxes.
A trust can be testamentary or living. A testamentary trust does not take effect until your death while a living trust will become effective once all the elements for creation are in place and assets are transferred to fund the trust. In addition, a trust can be a revocable trust or an irrevocable trust. A revocable trust can be changed by the maker (you) at any time and for any reason. An irrevocable trust, on the other hand, cannot be changed by the maker for any reason. Once you create an irrevocable trust you cannot add a new beneficiary or remove one. You cannot replace the trustee. You do not even have the power to revoke, or terminate, the trust. Under very limited conditions a judge may be able to modify or revoke an irrevocable trust but the maker may not do so under any conditions. So why would you want to create such a restrictive entity?
An irrevocable trust offers many estate planning advantageous to the maker. First, when you transfer property into an irrevocable trust it becomes the trust’s property, meaning you no longer own it. Since you don’t own the property it is not included in the value of your estate when you die. In fact, an irrevocable trust is not included in the probate of your estate at all. An irrevocable trust can also be used for asset protection purposes because once assets are transferred into a trust they are no longer within the reach of creditors. Finally, if you have a special needs loved one, a specific type of irrevocable trust can be created to provide your loved one with financial assistance without the risk of losing benefits provided by federal assistance program such as Medicaid and SSI.
Be sure to consult with your estate planning attorney to determine if an irrevocable trust could benefit your estate plan.
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