You’ve worked your entire life to provide for yourself and your family. How can you ensure that your loved ones are protected and taken care of after you are gone? The answer may be to establish an estate plan that includes not only a will but also a trust. How do you know which trust option is right for you?
Estate planning can be complicated. There are several ways you can protect your family and assets, but it’s challenging to narrow down the options that meet your unique needs. The Texas firm of Hargrave Law, PC, wants to explain the key distinctions between two of the most popular trust options so you can decide which trust is right for you.
What Is a Trust?
A trust is a distinct legal entity that a person establishes to manage their assets. Trusts are often considered an aspect of estate planning. However, they are set up during an individual’s lifetime to ensure that the person’s assets are managed as the grantor, the person who funds the trust, desires. The grantor will place assets into the trust. From the time the trust is established, a trustee manages those assets and will disburse them following the death of the grantor in accordance with the directives the grantor outlined at the establishment of the trust. Although the trustee manages the assets within the trust, they must follow the guidelines laid out by the grantor.
A revocable trust is sometimes also called a living trust. Revocable trusts are extremely flexible and can be altered at any point by the grantor, as long as the grantor is mentally sound. The grantor retains the ability to add or remove assets and beneficiaries and can modify how assets will be divided and managed.
Often, the grantor will name themselves the trustee, meaning the grantor manages the assets in the trust. Generally, a successor trustee is named, and this person takes over managing the trust when the grantor passes away.
The broad flexibility of a revocable trust makes it an attractive estate planning option for many people. However, there are some distinct disadvantages of a revocable trust. Since the grantor retains control over the terms of the trust, the assets put into the trust are not shielded from creditors. For example, if the grantor is sued, the assets held in a revocable trust can be liquidated to satisfy a judgment against the grantor. Another key disadvantage is that when the grantor passes away, the assets in a revocable trust are subject to state and federal taxes.
An irrevocable trust does not offer the same level of flexibility as a revocable trust. Once the terms of the trust are laid out, they are set in stone and cannot be easily altered. The grantor could have control of the assets placed into an irrevocable trust if he is the designated trustee.
The rigid structure of an irrevocable trust makes it seem like a less desirable option. However, it does offer some key advantages over a revocable trust. The assets in an irrevocable trust are not subject to estate tax upon the passing of the grantor. Assets held in an irrevocable trust are also protected from creditors, even in cases of a legal judgment against the grantor. While the grantor may not be able to access the assets, neither can creditors and Uncle Sam. But you cannot transfer property or cash to a trust to avoid a creditor.
Which Trust Option Is Right for You? Ask an Experienced Texas Estate Planning Attorney Today
There are distinct advantages and disadvantages to each type of trust plan. An attorney with Hargrave Law, PC, can review your situation and your estate planning goals and help you choose the option that best suits your unique circumstances.
For a confidential consultation to discuss your needs and goals, contact us online or call our office today at 817-282-0679.