There are many reasons for considering a trust as part of your estate plan.
Depending on the amount of control you need, you could choose either a revocable or irrevocable trust. Here are the benefits and drawbacks of each.
A revocable trust acts as a safeguard for your wishes in the event you become incapacitated. This kind of trust also avoids probate, saving your heirs the expense and public exposure of an often-lengthy process. A revocable trust can also hold qualified assets such as an IRA and a 401(k). This kind of trust is flexible. As the name suggests, you can revoke it or modify the terms whenever you wish. As for drawbacks, there is no creditor protection with a revocable trust and there are no tax benefits.
Once you establish an irrevocable trust, you cannot modify the terms or remove assets. While you relinquish control over those assets, this kind of trust protects them against the reach of creditors, an ex-spouse or taxing authorities. Wealthy individuals and people who own high-risk businesses often seek the protection irrevocable trusts provide.
When establishing either a revocable or irrevocable trust, choose a trusted relative or friend to serve as your trustee to manage the assets in the fund. The duties of a trustee include notifying beneficiaries that the trust is active. Ultimately, the trustee will transfer the ownership of assets to the beneficiaries according to your wishes. In the meantime, he or she will take charge of identifying the contents of the trust and ensure payment of all debts and taxes. Your trustee must act in good faith to carry out your wishes.