Though no one wants to think about dying, it is one of life's certainties. Given anything can happen, at any time, it's best to prepare now, regardless of your age.
A well-drafted irrevocable trust allows your estate to avoid probate and reduce estate taxes, saving your loved ones considerable time and money. Certain trusts also provide asset protection during your lifetime, e.g. a self-settled trust, while allowing for the anonymous ownership of assets.
Holding assets in an irrevocable trust 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 comprise an estate plan.
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). Removing the title from your personal name in this way acts as a deterrent to creditors.
As you do not technically own the asset creditors will have a significantly harder time attaching to it. The same applies for your beneficiaries after you pass away. Bad luck, accidents, frivolous lawsuits, divorce and other life events do not have to lead to bankruptcy.
Beyond your lifetime, a major appeal as an estate planning tool, is that it can enable your estate to avoid probate after you pass away.
Because a trust avoids probate, your heirs will inherit your assets more quickly 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. This provides the added protection that a lump sum of cash won't be given to somebody before they're ready for it.
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. While this simplicity appeals to many, it's a false allure as Wills do not avoid probate, provide asset protection or lower your taxes. In short, their simplicity can be very costly.
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.
Estates smaller than $200,000 can make do with a will, but we do not recommend it when your estate is in excess of that. Larger estates should use at minimum a revocable trust, with estates larger than $1,000,000 being good candidates for an irrevocable trust in Colorado.
Probate is the process by which assets are properly distributed after someone passes away.
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.
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.