A trust can be an important part of an estate plan. Once placed inside the envelope of a legal trust, assets such as real estate, cash, stocks and securities, jewelry and other valuables are managed by a trustee for the benefit of the party or parties who have been named as beneficiaries of the trust.
A trust can be structured in many different ways, depending on what the desired goal may be. If you are interested in setting up a trust as part of your estate planning process, here are some important points you will need to consider.
Trusts can help heirs avoid probate court
One of the chief advantages of placing a home or other real estate holdings into a legal trust is to keep your heirs from having to go through the complicated and often costly probate process after your death. When someone dies without having a legally valid trust or will in place, any assets that were solely owned by the deceased or shared as "tenants in common" must be be probated.
Assets for which there is already a legal beneficiary, such as trusts, POD bank accounts, and life insurance policies, generally can be dispersed without using the probate process, but can also be placed under the shelter of a trust.
Understanding the difference between revocable and irrevocable trusts
One of the most important things to remember when considering the creation of any trust is the difference between a trust that is revocable and one that is irrevocable. As the name implies a revocable trust is one that can be canceled by trustor, who created the trust.
This type of trust is most often called a revocable living trust, because it can be changed for any reason or at anytime, such as when a trustor no longer wants to leave an asset to a certain person. It is important to note that revocable trusts are not protected from creditors or liens.
In contrast, an irrevocable trust is one that cannot be changed or canceled, once it has been been formed, signed, and funded. In addition, an irrevocable trust must be managed by a trustee, and not by the original owner of the assets. Because an irrevocable trust effectively transfers ownership of an asset to another party, assets held inside the trust may be sheltered from creditors, taxing authorities, and other legal actions.
To learn more about trusts and whether they are a good fit for your estate plan, make an appointment with companies such as Thomason & Hessmer.