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Some Vital but Basic Facts to Know About Trusts.
Simply put, a trust is a legal entity that allows you to transfer your assets and holdings to the ownership of a trustee.
A living trust can either be drafted as revocable or irrevocable. Depending on the type of trust, you can be your trustee or name another trusted relative or friend to hold that position. The trustee’s job is to assume a fiduciary role; legally, this means they are required to act only in the best interests of the trust beneficiaries.
Your beneficiaries are the family members, loved ones, or other heirs you want to benefit from your trust. For example, you could have a trust drafted to help your spouse and children.
Your trust document will be professionally drafted by an experienced and knowledgeable estate planning attorney to precisely detail how you want the assets in the trust to be managed and distributed to your beneficiaries when you die or become incapacitated. Your appointed trustee will ensure that these precise wishes are carried out.
Even if you have moderate assets and plan to pass them on, forming a trust can ensure this is done according to your wishes and make the entire process more efficient and easier to manage.
What is Revocable Trust and How Could I Use It?
A revocable living trust is, in simple terms, revocable, meaning it can be changed, altered, or even eliminated during your lifetime. A revocable living trust can be self-settled. This means that you, as the trust’s grantor, can also be its beneficiary, or it can be a third-party trust in which the beneficiary is another person. The primary benefit of this type of trust is avoiding probate at the time of death while maintaining complete control over the trust while you’re alive. Since the trust owns all your assets, they are not subject to the probate process and are distributed directly to the beneficiaries you name in the trust.
Also, a revocable living trust can protect you (as the “grantor”) against a conservatorship if you become incapacitated. The revocable trust prevents your family from going to court to obtain a conservatorship to manage your assets; your trustee would immediately assume control over the entire trust and its assets.
What is an Irrevocable Trust, and How Can It Benefit Me?
First, an irrevocable living trust cannot be changed, altered, or canceled after establishing the document. An revocable living trust becomes irrevocable when you, as the grantor, die, but an irrevocable trust cannot be changed when it’s created. It remains irrevocable throughout your life.
There are some precise cases when you can alter an irrevocable trust. For example, if you have a charitable trust, you may be able to modify its terms to comply with new federal or state tax laws.
Usually, one of the main reasons to draft an irrevocable living trust is to protect your assets from estate taxes. Because asset ownership is transferred from you (as the grantor) to the trust, you no longer have any control over these assets or holdings, and they are not considered as part of your estate when you die. Those assets and property held in the irrevocable trust will be exempt from taxation.
Additionally, an irrevocable living trust can be used quite effectively to protect your assets against debt settlement judgments or when calculating assets to determine your eligibility for specific government programs such as Medicaid or Social Security Disability.
Because you have transferred ownership of your assets to the trust, they no longer are counted as your assets. It is difficult for a creditor to obtain a judgment against an irrevocable trust. Assets held in an irrevocable trust cannot cause a disabled person to become ineligible for federal or state benefits.
You must note, though, that every financial circumstance differs and to credibly ascertain which type of trust meets your specific needs, the professional advice and guidance of a Long Island estate planning lawyer is mandatory.
What Are the Main Differences Between a Revocable and an Irrevocable Trust?
There are numerous types of trusts you can establish. For example, there are grantor trusts, A/B trusts, testamentary trusts, special needs trusts, etc. However, they all share one thing: trusts are either revocable or irrevocable.
As the grantor (the person drafting the trust), you can change or end any type of revocable trust at any time during your lifetime.
This means that you can: So that means you could:
- Add or remove beneficiaries, heirs, or loved ones at any time.
- Transfer more of your assets into the trust or remove assets it already holds.
- Change any of the terms of the trust and how its assets should be managed or distributed.
- End the trust at any time you wish.
When you die, a revocable trust automatically becomes irrevocable. At that point, its terms cannot be changed.
Any irrevocable trust is essentially “set in stone” and cannot usually be changed for any reason. When you draft an irrevocable trust during your lifetime, any assets you put into it must remain in the trust. You no longer can add or remove beneficiaries, heirs, etc., or change any of the trusts’ terms or conditions.
There are many types of irrevocable trusts, such as:
- Medicaid protection trust
- A qualified domestic trust (QDOT).
- The qualified personal residence trust (QPRT).
- Supplemental needs trusts, charitable trusts, and many more.
All types of irrevocable trusts are either testamentary trusts or living trusts. A testamentary trust is created in your will and is implemented only after you die. Since a testamentary trust doesn’t take effect until after your death, you usually can make changes until then when the trust becomes irrevocable. Also, note that this type of trust won’t transfer assets outside of probate since you (as the grantor) own the assets at your death.
I Need More Information on Irrevocable and Revocable Trusts; How Should I Proceed?
Irrevocable and revocable trusts can benefit your estate and protect your assets and your family’s financial future when you are gone, but all estates and their holdings are unique. Yours is no exception. Therefore, to rationally and prudently decide which type of trust can best serve your needs, the advice and compassionate guidance of an experienced estate planning attorney is necessary.
The primary function of any trust is to protect your estate and ensure your detailed and precise wishes are carried out after your death or incapacitation. By thoroughly discussing your assets and concerns with a professional, expert, and empathetic Long Island estate planning law firm, you can ensure whatever you decide is the right fit for you, your finances, and your family’s future.
The estate planning law team at the Davidov Law Group has a long and successful history of helping New York clients fully comprehend what a professionally drafted trust can do for them and their families and loved ones.
Call them today at 516-253-1366, and they will ensure the financial soundness of your estate and your family’s future.
