Choosing the Right Trust for Your Estate: Revocable vs. Irrevocable Trusts
A preliminary Google search about estate planning can yield full-throated recommendations about establishing a trust. You might get the feeling that if you do not have a revocable or irrevocable trust, it must mean that you are a chump. If you click on the results of your search and then refine your subsequent search terms accordingly, you will see more nuances to the situation. Some of the websites are the work of multilevel marketing bros who think that if you are not wealthy enough to reasonably worry about maxing out the annual gift tax exclusion during your lifetime, you meet the definition of a chump, and the true purpose of the site is to goad you into signing up for their multilevel marketing business opportunity which they are pretending has made them wealthy. Others are the work of bots that have unthinkingly remixed the words of the multilevel marketing bros. Once you read past those, you will find some authors who advise you to establish a trust even if your income and the value of your assets place you firmly in the 99%.
There is no one-size-fits-all rule about whether you need a trust and what kind. To find out whether it is beneficial for you to set up a revocable or irrevocable trust as part of your estate plan, contact a Whittier estate planning lawyer.
Why Establish a Trust?
A trust is a legal entity that owns the property that the grantor, the person who establishes it, transfers to it. Therefore, the assets in the trust legally belong to the trust and not to the grantor. Think of it as a less shady version of titling your property in the name of a business that you own or one of your family members. Part of the process of setting up a trust is to write a trust instrument, a document that outlines the instructions for how the trust operates, including dispensing money to beneficiaries and investing its assets. The person or entities authorized to access the assets of the trust, and therefore obligated to abide by the trust instrument, is called the trustee. The people who receive payments from the trust are called the beneficiaries.
One of the main reasons that people establish trusts is to ensure the financial support of a family member. For example, if a couple marries late in life, the husband may establish a trust for the benefit of his wife, which will pay her money each year that she outlives him while leaving his estate to his children from a previous marriage. Likewise, you might establish a trust to pay for your grandchildren’s college tuition or to support a family member with disabilities while enabling him or her to remain eligible for government benefits.
The other main reason is to make the transfer of property to one’s assets less expensive. A trust does not become part of your estate, so it does not go through probate. The beneficiaries can start receiving payments as soon as the trust instrument indicates, even while the grantor is still alive.
The Differences Between Revocable and Irrevocable Trusts
There are two main differences between a revocable trust and an irrevocable trust. With a revocable trust, you can modify the trust instrument as many times as you choose during your lifetime. When the grantor of a revocable trust dies, the trust becomes irrevocable because the grantor is no longer around to tinker with it. You cannot modify the trust instrument of an irrevocable trust; if you want to change it, you must dissolve the trust and establish a new one.
The other difference involves tax obligations. An irrevocable trust is a separate legal entity. Therefore, it files its own tax returns, and the grantor does not include it among his or her assets for tax purposes. By contrast, a revocable trust is not separate from its grantor from the perspective of the IRS. Therefore, you must continue to pay taxes on the assets in your revocable trust throughout your life. Which type of trust you should choose depends on your motivations for setting up the trust and on the value of your assets inside and outside the trust.
Contact the Law Offices of Omar Gastelum About Revocable and Irrevocable Trusts
An estate planning attorney can help you establish a revocable or irrevocable trust. Contact the Law Offices of Omar Gastelum and Associates APLC in Whittier, California, to set up a consultation.
A Whittier estate planning lawyer can help you set up a revocable or irrevocable trust as part of your estate plan.
