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While having a will is a crucial aspect of an estate plan, trusts are equally beneficial. Business Insider explains that trusts help you avoid probate, which is a costly and drawn-out legal process depending on the situation.
However, that is not the only benefit trusts provide estate planners. Here are a few basic facts about these essential tools and how they might help you.
You are the grantor of the trust, meaning you open and fund it with your assets. The person who receives your assets after you die is the beneficiary or heir. There is also a trustee, which is a person you choose to oversee the trust. Financial entities, like banks, or professionals, such as an attorney, can also serve as trustees. Some grantors also name a remainderman, which is usually a charitable organization to receives any remaining assets after your beneficiaries received theirs.
Revocable vs. Irrevocable Trusts
If you set up a revocable trust, you have the ability to change it during your lifetime. That means you can remove assets or change how your beneficiaries will receive them. That is because you are the trustee of a revocable trust, as well as being the grantor. With an irrevocable trust, you cannot alter them during your lifetime. Only the trustee can, and usually only with approval from the beneficiaries.
In most cases, the grantor of a revocable trust is responsible for paying income taxes on the assets used to fund it. With an irrevocable trust, the beneficiary is usually responsible for paying taxes. If there are concerns about estate taxes, which is the case for people with many assets, an irrevocable trust prevents the grantor from paying them. This is because they no longer own the assets, as they are re-titled in the trust’s name.
Trusts also provide you more control over your assets after you are gone. For example, if you want a young beneficiary to receive the assets over a period of time, instead of in a lump sum, a trust can help you do so.