A trust is a valuable estate planning tool that enables the creator to pass assets down to others without having to go through the probate process. Trusts also provide a measure of privacy for all parties involved since the contents of the trust aren’t public record.
There are many different types of trusts that all serve different purposes. One thing that you have to pay attention to if you’re establishing a trust is whether it is a revocable or an irrevocable trust. This distinction can play a huge role in what type of protections the trust offers.
A revocable trust is one that the creator can alter or cancel while they’re alive. Because they have control over the trust, it can be claimed by their creditors, so it doesn’t provide any protections against claims made against the trust. If the creator is sued, the court can order that a revocable trust is liquidated to pay off the lawsuit.
An irrevocable trust is one that can’t be changed or canceled once it’s established and funded. Since the creator can’t touch the contents of the trust or change the terms, this type of trust provides protections against creditor claims. An irrevocable trust also removes the assets from the estate, which means that the trust isn’t subjected to an estate tax.
Trusts must be set up with specificity. It’s imperative that you work with an attorney who’s familiar with trusts so you can ensure that you and your heirs are reaping the full benefit from the trusts. Remember, the trust is only one component of an estate plan, so don’t forget to set up the others, including the powers of attorney and will.