Many people assume that a will is the cornerstone of any good estate plan, but the truth is that wills are the most rudimentary of estate planning documents. Survivors can contest a will, and wills are subject to probate, which is an often lengthy and expensive process. Though a will may serve many peoples’ purposes, you may find that a trust offers more benefits and protections than the traditional estate planning document.
Benefits of using a trust
According to SmartAsset, trusts come with several benefits. Trusts allow you to pass on your property without it having to go through probate. They allow you to establish rules and requirements for heirs who stand to inherit money or property, set aside assets for the care of a special needs dependent, create a plan for the management of assets in the event you become incapacitated and possibly reduce gift and estate taxes, among other things.
Not all trusts are created equal. You have your choice of several different types of trusts, the two most common of which include revocable and irrevocable trusts. Every other trust falls into one of these two categories.
Revocable trust
A revocable trust offers ample flexibility and allows you to maintain control of your assets for the duration of your lifetime. Once you create a revocable trust, you have the freedom to alter it or revoke it as life circumstances dictate. For instance, if you get divorced and remarried, you may want to change your trust to reflect the changes those events prompt. The terms of a revocable trust do not become permanent until you pass away. You can also maintain control of the trust’s assets after you pass away or become incapacitated by naming a successor trustee.
Revocable trusts do not have to pass through probate, which can save your heirs significant time and headache. Though they do not offer protection from debt collection efforts, they can make it more difficult for creditors to access your assets.
Irrevocable trust
An irrevocable trust is much more stringent than a revocable trust. Once you create an irrevocable trust, you cannot modify it in any way. Whether you transfer funds into the trust or real estate, you cannot undo the action. Given this knowledge, why would someone want to use this estate planning vehicle?
An irrevocable trust offers two substantial benefits. The first is that it protects assets within the trust from claims of beneficiaries, creditors and even Medicaid. The second is that it allows you to shelter certain assets from estate and gift taxes. For these reasons, irrevocable trusts offer considerable appeal to wealthy individuals.