What is a Trust and Why should you want one?
A trust is an arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary. Trusts are typically used to minimize estate taxes and can offer other benefits as part of an estate plan. Trusts usually allow your estate to avoid probate, which allows the beneficiaries to gain access to the trust’s assets much more quickly than if they were transferred via a will.
The major distinction between trusts is whether they are revocable or irrevocable. A revocable trust can help to pass items without going through probate, yet allow the person who created the trust to retain ownership and control over the assets during their lifetime. Revocable trusts are still subject to estate taxes and other taxes because of the ownership and control power. A revocable trust can also be dissolved at any time, but will usually become an irrevocable trust when the creator of the trust passes away.
On the other hand, an irrevocable trust transfers the assets out of the estate to potentially avoid estate taxes and probate. While a revocable trust can be dissolved at any time, an irrevocable trust generally cannot be altered once it has been executed. Even so, irrevocable trusts are typically preferred because the assets that are transferred to the trust relieve the tax liability on any income generated by those assets. Another advantage of an irrevocable trust is that the assets may be protected in the event of a legal judgment against a beneficiary of the trust.
For more information on the formation of a trust or developing an estate plan, please reach out to the professionals at the Center for Financial, Legal, and Tax Planning, Inc., at (618) 997-3436.