Did you know that there are many different types of trusts that can be used in estate planning? The type of trust that you need can depend on your goals, the nature of your assets, and the nature of the beneficiaries.
With a revocable trust, the trust can be changed by the grantor or creator at any time, for any reason. The grantor of a revocable trust retains the rights to or the benefits of the property. Since the grantor will retain these rights, he or she will continue to be taxed for the property, and the property will be included in the grantor’s estate for estate tax purposes.
Irrevocable trusts cannot be changed after they are created, except in very limited circumstances. There are many different types of irrevocable trusts. For instance, a testamentary trust is an irrevocable trust created through a last will and testament. The grantor will have passed away in order for the will to be read by the probate court and the trust to be created, which means it will be an irrevocable trust. While testamentary trusts can be used in a wide variety of situations, they are commonly used to provide for minor children.
Irrevocable trusts are often used for tax saving, or for protecting a vulnerable beneficiary. In the first instance, because the grantor gives up the rights to and benefits of the assets contained in the trust when it becomes irrevocable, the grantor is not taxed for the assets. Instead, the trust itself is taxed, and its assets are not included in the grantor’s estate for estate tax purposes. Before creating an irrevocable trust, it is important to understand that the assets it contains cannot be distributed except as provided in the trust agreement, no early payments, no discretionary payments.
If you would like more information on trusts and their many benefits, please reach out to our office to schedule a meeting time.