By Jonathan Feniak, Esq., MBA
A trust represents a legal arrangement between three parties:
land trust The way a Colorado trust works is that the trustor (also referred to as the settlor or grantor) transfers title to his assets from his own name to the name of the trust. The trust will then be managed by the trustee for the benefit of the beneficiary. This applies for both irrevocable and revocable trusts.
Trusts are an excellent way to manage your assets while you are alive and well and a way to control how your assets are managed during times of incapacity or after you pass away. In addition, trusts are a great way to distribute your assets to your beneficiaries while avoiding probate.
Another big advantage to using trusts is the level of privacy they offer. A complete lack of privacy is an aspect of probate that most people overlook and almost everyone dislikes. A will always has to go through probate, which means court involvement and no privacy. But, unlike probate, a trust never needs to be filed in a probate court or anywhere else.
Just like it sounds, an irrevocable trust is one that you cannot revoked. While you can continue to place assets into an irrevocable trust after it is formed, you cannot take assets out. Only the trustee will be permitted to distribute assets out of the trust, and only if permitted by the trust documents.
An irrevocable trust cannot amended or changed by the person who formed the trust, but it can in limited circumstances be amended or changed by the trustee, if permitted to do so by the trust documents. If you create and fund an irrevocable trust, you are pretty much stuck with the decisions you have made as far as the trustee you have chosen and the instructions you included in the trust document.
There are also some disadvantages to an irrevocable trust when compared to a revocable trust. Most notable, you (as the settlor or grantor) lose control over any asset you place in an irrevocable trust. The trustee will have total control over the assets from that point forward. While the trustee has a duty to follow the instructions in the trust, you will not be able to change those instructions at a later date.
If you are still unsure which kind of trust is right for you, or if you need more help understanding the differences between a revocable trust and an irrevocable trust, an experienced Colorado estate planning attorney can help. Working with a good estate planning attorney can ensure that you, your assets, and beneficiaries are well taken care of within your overall estate plan. Schedule a consultation with our experienced Colorado estate planning attorneys through the contact link on our website.
A revocable living trust can allow you to cover three possible phases of your life:
The main and most direct advantage to using a revocable trust, however, is that it can, when used properly, enable your estate to avoid probate. The biggest disadvantage to revocable trust, however, is that because you can still access the trust assets whenever you want, the trust assets are still technically yours and available to your creditors and the IRS. This is where an irrevocable trust can help.
An irrevocable trust is not as common as a revocable trust, but it can play just as important a role in your estate plan. The advantages of an irrevocable living trust are twofold.
Virtually any sort of asset can be held in an irrevocable trust. But, there are some very good advantages to holding life insurance in an irrevocable trust. In fact, this is a special kind of irrevocable trust that is referred to as an Irrevocable Life Insurance Trust (ILIT).
An ILIT is a trust used to protect life insurance and death benefits from estate taxes. But, besides allowing assets to pass free of estate taxes, an ILIT can also ensure that any proceeds generated by the trust will be exempt from federal income taxes. This means more money to be distributed to your beneficiaries.
If life insurance proceeds are paid to your estate upon your death, those proceeds will need to go through probate and could be subject to estate taxes. Once they go through probate, they will be paid to your beneficiaries in accordance with your will. In the alternative, if you name a person as the beneficiary of your life insurance, those proceeds will not go through probate and will not be subject to estate taxes, but they will be paid out in a lump sum. If you do not think a beneficiary can handle the responsibility of receiving a large sum all at once, an ILIT can achieve all of your goals by: