It is never too early to think about estate planning. Even if you are not wealthy, you want control over what happens to money and property you leave behind. Most people have considered making out a will, but this is not always the best method. If you have investments, own property or have interest in a business, you may want to consider placing your assets in an irrevocable trust.
There are several advantages to a trust. You can be much more specific about the conditions under which beneficiaries receive the assets. A trust can hold money or property for a charity, a spouse or even yourself. If you become incapacitated due to an accident or illness, the money for your care will be ready. Trusts can also exist for a specific purpose or purposes, like a college education for a child or elder care for a parent. Money in a trust can be invested and the proceeds put back in the trust fund.
The person who puts assets in a trust is the settlor or grantor. The person who handles the trust is the trustee. The beneficiary is the person or institution receiving the benefits of the trust.
Types of Trusts
A revocable trust is one that can be amended after it is created. You can change the terms of the trust at any time. You can remove or add assets, change beneficiaries and so on. The money and other assets remain yours. However, this also means that anything placed in the trust is subject to taxes, including estate taxes your heirs will have to pay when you pass on.
An irrevocable trust is one that cannot be changed or ended by the grantor after it is created. The assets will belong to the trust and are no longer owned by the grantor. If any changes are necessary in the future, the grantor will need permission from the beneficiary.
Advantages to Irrevocable Trusts
Irrevocable trusts are often created to avoid heavy estate taxes. When you pass on, your estate will be assessed. If it is over a certain amount, your heirs will have to pay state and federal estate taxes. Since the assets are no longer yours once they go into the trust, they are no longer part of your taxable estate. This includes taxes on income from any business or investments that you put in the trust.
Pay no attention to remarks about spoiled trust fund babies. Most young people whose parents thoughtfully provide for them through a trust fund are not wealthy idlers. They have something to fall back on in hard economic times. If you are concerned that your children will be wasteful, order the terms of the trust so that they can only use the assets for certain things or after meeting certain conditions.
It is usually still necessary to have a will to handle parts of your estate that are not covered by the trust. An experienced estate planning attorney can advise you.