There are many types of trusts, but irrevocable and revocable trusts are the most common. An irrevocable trust involves giving up control of your assets during your lifetime. You name a trustee who manages the trust and the assets you place in it. You can manage a revocable trust yourself. One might be more suitable for you than the other, depending on what you're trying to achieve.
Trusts Avoid Probate
Many people include trusts in their estate plans for the purpose of avoiding probate. Both irrevocable and revocable trusts bypass the probate process. This can be an attractive option if you have a large estate, because probate can cost up to 7 percent of your estate's value. There's a catch, however. You must transfer ownership of your assets to your trust before your death. The assets you own are subject to probate when you die, because probate is the legal process that transfers ownership of your assets to your beneficiaries. The trust, on the other hand, transfers trust assets to your beneficiaries, so probate is unnecessary.
Trusts Are Private
If privacy is a concern to you, trusts are a good estate planning option. Some people choose them because they don't want their financial holdings to be common knowledge when they die. Because assets placed in your trust don't go through the probate process, they're not a matter of public record.
Trusts Control Inheritances
Trusts can also serve the purpose of keeping control of your assets even after your death. If you pass your assets to your beneficiaries through a will, they receive the assets when you die. If you use a trust instead, you can set it up so that younger, less mature beneficiaries might not receive their inheritance until they reach a certain age. The trust would manage their inheritance until that time.
Some Trusts Shield Your Assets From Creditors
A purpose unique to irrevocable trusts is that they can also shield your assets from creditors during your lifetime, so you're sure you have something to leave your loved ones when you die. If your career is one that leaves you open to lawsuits, and if someone gets a judgment against you, they can't use that judgment to seize your assets if you've transferred them to an irrevocable trust. If you maintain control over them, either through a revocable trust or by not forming a trust at all, you could lose the assets to creditors or lawsuits.
An Trust and Estate Lawyer Can Help
The law surrounding the purpose of trusts in estate planning is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a trust and estate lawyer.
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