Placing assets into a trust is one of the more effective ways to pass them down to heirs and beneficiaries after you pass away. These are much different from wills because they typically don’t go through the probate process like wills do.
There are a few basic things you should know if you’re going to set up trusts as part of your estate plan.
Irrevocable or revocable
All trusts fall into two broad categories – irrevocable or revocable. This classification has to do with how much the creator can change the trust. Irrevocable trusts are controlled by a trustee and can’t be changed by the creator unless they have permission from people who are part of the trust. Revocable trusts, which can be changed at the creator’s discretion, are controlled by the creator until they pass away.
Irrevocable trusts provide protection from creditors because the creator doesn’t control the assets once they’re titled to the trust. That protection from creditors isn’t present in a revocable trust because the creator still controls the contents of the trust.
Revocable trusts don’t offer tax shelter benefits, which are subject to all applicable state and federal taxes when the creator passes away. You should use an irrevocable trust if you want to utilize tax shelter benefits.
Anyone setting up an estate plan should learn what types of trusts they can use to pass assets down to their heirs. Working with someone who’s familiar with these matters may help you to determine how you want to set up the estate plan in a way that preserves the wealth for future generations.