Estate plans serve several purposes. They outline a person’s wishes for medical care and financial decisions if they become incapacitated. They also provide a plan for what will happen to the creator’s assets when they pass away.
In some cases, a person can handle the asset allocation through their will, but that’s not always the case. Some people opt to use trusts to pass assets to their beneficiaries. Understanding how trusts work may be beneficial for anyone creating an estate plan.
What is a trust?
A trust is a legal tool that allows the creator to set specific guidelines for the distribution of assets held within the trust. One of the primary benefits of establishing a trust is that the assets in it are distributed without going through the probate process, which means that they will get their inheritance faster and with less expense. It also gives them a measure of privacy since the terms of the trust aren’t entered into the court’s public records.
All trusts are either revocable or irrevocable. A revocable trust can be changed or cancelled as the creator sees fit, but it doesn’t have as many protections as an irrevocable trust.
An irrevocable trust is one that can’t be changed unless the beneficiaries or court agree to the changes. Once the irrevocable trust is established, the contents of the trust transfer to the trust’s control. The creator of the trust relinquishes control of the trust to the trustee.
Since the creator doesn’t control the trust, the contents of the trust are protected from creditor claims. This makes an irrevocable trust a valuable option for people who are concerned about wealth perseveration, particularly if they have a high-risk occupation that’s prone to lawsuits.
A trust is only part of a comprehensive estate plan, so it’s critical that anyone creating an estate plan considers the full picture. Working with someone who can assist with getting everything set in a legally enforceable manner is beneficial for people in this position.