What Is A Trust?
A trust is a legal entity that is comparable to a limited liability company or other legal entity that has the ability to own assets in its name. In many ways, a trust is a far better method to hold title to your assets. First, when you become incapacitated or otherwise unable to manage your own affairs, you can have appointed in your trust document a successor trustee who will step up and manage your money and assets for your benefit. Therefore, there will be no need for the court to become involved in the management of your affairs. Reducing court involvement saves time and potentially saves lots of money.
Why Might You Use A Revocable Living Trust As Part Of Your Estate Plan?
A revocable living trust is one whereby you can hold your assets within your own control for as long as you are alive and able to manage your own affairs and you have the power to designate or appoint who will be in charge of those assets and financial affairs when you will no longer be able to manage them yourself. This ability to designate future control can be a very attractive option for many of us. In addition, we can designate what will happen to these financial assets after we have passed away. We can do this in a trust with great flexibility and generally without any court involvement. Therefore a revocable trust can reasonably be stated to be a legal vehicle that allows you to maintain your privacy, maintain your independence, and maintain control over your financial assets as long as possible.
Are There Any Drawbacks To Using A Revocable Living Trust As Part Of Your Estate Plan?
There are potential drawbacks to using a revocable living trust as part of your estate plan. First, maintaining privacy over your estate plan also means that there is not judicial oversight of the actions of your trustee as a general rule. Therefore, if your trustee is negligent or a thief, she may be able to get away with a great deal of criminal activity before she is caught. There is a chance, but not a certainty that if the same person were a court appointed fiduciary, she might be caught more quickly than if she were doing the same work as your trustee. Therefore, it is urgent that you exercise great care when appointing successor trustees. If you do not have someone in your immediate circle of family and acquaintances with whom you have other confidence, it is probably time to consider using a trust company, a certified accountant, or an attorney to serve as your successor trustee.
Why Would Someone Opt For An Irrevocable Trust?
Assets that are held in your name only, and those assets held in your revocable living trust are completely within your control without reservations or restrictions so long as you are alive and have capacity. The downside, however, of that utter and complete control and flexibility is that assets held in your name or in your revocable trust do not have any protection from creditor’s claims. That is where the irrevocable trusts come in. Almost everyone should give serious consideration to adding an irrevocable trust to their estate planning tools. With such a trust, you can segregate a portion of your property to be protected in the event of unexpected future negative situations such as health setbacks or lawsuits.
By giving up some of your control over the assets on an irrevocable trust, you can have some creditor protection for your assets. This can be a great benefit to your family members who you desire to support and protect over a long period of time. This is not a decision to be made lightly. In fact, you should never do this without a serious consultation and assistance from an established estate planning attorney who uses irrevocable trusts on a regular basis.
Are Certain Types Of Assets Better For Either An Irrevocable Trust Or a Revocable Trust?
Yes, certain assets are better for an irrevocable trust and others are better for a revocable trust. Unfortunately, there is no way to create a reliable bright line list that will allow you to know which assets go into which trust because the type of assets that work perfectly in your irrevocable trust may not be appropriate for my irrevocable trust at all. My irrevocable trust might be best served if I fund it with rental property but your irrevocable trust might be much better served if you put your savings account into it. You will have to consult with a thoughtful attorney who handles lots of irrevocable trusts in order to receive a reliable guide as to which of your own assets should be put into your irrevocable trust and what other assets of yours should be placed into a revocable trust. There is no single answer that fits every situation.
Can I Sell A House That Is In My Irrevocable Trust?
Yes. The trustees of the irrevocable trust are almost always allowed to sell assets belonging to the trust and invest those funds into other assets for the benefit of the trust. For example, I may have an irrevocable trust for the benefit and education of my daughter. I can put into that trust rental property that I want to designate for her care. My trustees can sell that rental property and re-invest the funds into other real estate or into investments such as stocks and bonds if that is more appropriate for the situation.
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