While no one wants to think about dying, it is definitely one of life's certainties. And because anything can happen at any time, it is best to be prepared now, regardless of your age.
A well-drafted irrevocable trust can allow your estate to avoid probate and reduce estate taxes, saving your loved ones considerable time and money.
In addition, holding assets in an irrevocable trust for the benefit of your loved ones can protect those assets from your creditors, which could be a key benefit if you have potential litigation issues in the future. In order to understand the benefits of forming an irrevocable trust it is important to understand the documents that are part of an estate plan.
A basic Will is one of the simplest steps you can take in estate planning. A Will is a legal document that provides instructions after you pass away for the distribution of your property, care of your minor children, pets, and more.
When you die without a valid will, the intestacy laws of the state where you reside will determine how your property and possessions will be distributed to your heirs. This can result in your estate not being distributed to the people and in the amounts you would have chosen.
When someone dies, his or her debts must be paid and their assets must be distributed to their heirs. The assets that will be distributed include the decedent"s real estate, bank accounts, stocks and bonds, automobiles, furniture, jewelry, and other property. The manner in which the estate assets pass to heirs is called probate. In its simplest terms, probate prevents the decedent’s heirs, creditors, and other interested parties from claiming assets of the estate that may not rightfully belong to them.
Unfortunately, probate costs money, and sometimes a considerable amount of money. Some of the costs involved in probate include:
Many estimates put the cost of probate at anywhere from 3% - 8% percent of teh value of an estate's assets. What's more, because probate is a court process, it can take a long time: anywhere from several months to several years.
A trust is a legal arrangement whereby one party (the grantor) allows another party (the trustee) to hold property for the benefit of a third party (the beneficiary). One of the major appeals of a trust, as an estate planning tool, is that it can enable your estate to avoid probate after you pass away.
Because a trust usually avoids probate, your heirs will typically inherit your assets much faster through a trust than through a Will. Furthermore, trusts can be structured in many different ways and can dictate exactly how your assets will pass to the beneficiaries.
There are basically two broad categories of trusts:
A revocable trust will enable you to designate what happens to your property after you pass away or become incapacitated. In addition, with a revocable trust, you can modify or change these designations whenever you want to reflect changes in your estate or beneficiaries. You can also appoint yourself as the trustee of a revocable trust and maintain control over the trust assets while you are alive.
On the other hand, with a revocable trust, you will still be exposed to estate taxes. But not only that, while you are alive, the trust assets can be accessed by your creditors to satisfy your outstanding personal financial liabilities.
If your primary goals are to protect your assets and to minimize estate taxes, an irrevocable trust may be a better option for you. An irrevocable trust moves your assets out of your estate and beyond your creditors reach and can avoid both estate taxes and probate.
The primary difference between a revocable trust and an irrevocable trust is that an irrevocable trust cannot be changed or modified by the grantor once it has been created, but it can be changed of modified by the trustee. Consequently, once you create the trust and place assets into it, you relinquish control over the assets to the trustee and won't be able to modify, change, or revoke the trust yourself.
Depending on your situation, an irrevocable trust may be preferred over a revocable trust because:
It is important to keep in mind, however, that you can have multiple trusts and different combinations of them. An experienced estate planning attorney can assist with understanding how various types of trusts can be used in combination to meet your estate planning objectives.
For More information contact our qualified and experienced Colorado trust and estate planning attorneys through the contact link on our website.