With a Living Trust, you are shaping your future, and your estate. You are creating an asset by having a Living Trust, and are protecting the interest of both your loved ones and yourself. Also known as a revocable trust, a Living trust is set up while you are still alive and able to make decisions.
You Would Need Three Things To Create A Living Trust:
- The person who creates the Trust (trustor or grantor)
- Beneficiaries for who you created the Trust for
- And someone you choose to manage and care for the Trust (Trustee).
There are different types of Trust. The main two trusts are Irrevocable trusts and revocable trusts. It is imperative that all parties (grantors, trustors, trustees, beneficiaries) are aware of the difference between the two. An irrevocable trust cannot be changed or revoked. They are mainly used as a means to protect assets or detailed tax results.
Revocable trusts allow you to be able to change or revoke anything within the trust, as you please. Having a Revocable Trust gives the ability to avoid probate.
Irrevocable Trusts serve to remove assets that are included in your estate so that when you pass away, you already have a reduced taxable estate. Clients with substantial assets require the need for more estate tax planning which includes Irrevocable Trusts.
Revocable Trusts, often the most popular type of Trust, encompasses everything needed for the control and management of your assets, not only after your death but while you are alive. You can use a Living Trust to control assets before you die. Your chosen grantor, or Trustee, ensures your Trust is funded, by moving assets into it, before your passing.
After creating your trust, you should also consider preparing a Pour-Over Will, which catches any assets that may have been potentially left outside of your Living Trust. This Pour-Over Will allows for the direction of leftover assets into your Trust, even after your death.
Pour-Over Wills are also beneficial in the avoidance of probate. Pour-Over Wills provide detailed explanations of exactly how your assets are set to be distributed. This removes the need for courts to be the decision-makers on how to best handle your assets and property. Along with avoiding probate, a Living Revocable Trust allows the Trustor to specify how your estate can be distributed without the need for court involvement or influence (unless a dispute takes place).
Long story short, the main differences over Irrevocable and Revocable Trusts include the amount of control of the grantor over your assets. Revocable Trusts can be changed at any time. Grantors can withdraw assets, when necessary, or make changes to your Trust. Because of this, state and federal governments have disregarded Revocable Trusts for taxation and look at them as being incapacitated. Mental issues are also included with incapacitation, allowing your trustee the ability to completely manage your Trust on behalf of you. Irrevocable Trusts cannot be changed after it has been created without the consent of the beneficiaries.