Very few people want to see an estate end up in probate. It is an expensive and lengthy process that requires a judge to validate and authenticate your will and name an executor. Creditors must then be notified and paid off before distributing your assets to the beneficiaries.
There are a few ways to prevent probate litigation, such as joint ownership and gifting some of your possessions to your loved ones while you are still alive. Another way to avoid probate is by establishing trusts.
What are trusts, and how can you set one up?
Types of Trusts
A trust is a legal arrangement in which one person (a trustee) manages property of another person (the beneficiary). Revocable, irrevocable, and testamentary trusts may be terms you have heard.
Revocable and irrevocable are living trusts that go into effect and are funded while the grantor is still alive. A testamentary trust is created through a will and does not take effect until after the grantor’s death.
Trusts can effectively manage your property and ensure it is distributed according to your wishes. But, each of them has its benefits and drawbacks.
- A revocable trust can be changed or terminated at any time by the person who created it, called the grantor. In addition to being a way to avoid probate, a revocable can be used to manage assets during the grantor’s lifetime, which can be helpful if the grantor becomes incapacitated.
- Revocable trusts also have some drawbacks. Because the grantor retains control over the assets in the trust, they are still considered part of the grantor’s estate for tax purposes. Additionally, revocable trusts do not offer the same level of asset protection as irrevocable trusts.
- An irrevocable trust cannot be changed or terminated once created without the beneficiaries’ approval. This may seem like a drawback, but it provides some distinct advantages:
- An irrevocable trust can help to protect assets from creditors. Once an asset is transferred into the trust, it becomes the property of the trust and is no longer subject to the claims of the grantor’s creditors.
- It can help to minimize estate taxes. Assets in an irrevocable trust are not included in the grantor’s estate for tax purposes, so they are not subject to estate taxes when the grantor dies. An irrevocable trust can help ensure that assets are distributed according to the grantor’s wishes.
- One common issue with irrevocable trusts is that they may not be able to be adapted to changes in the needs of the beneficiaries. For example, if a beneficiary develops a medical condition that requires expensive treatment, an irrevocable trust may not be able to be modified to provide for that need.
How to Navigate Estate Planning Concerns Such as Trusts and Probate
Due to the nuances of setting up a trust, you may want to consider working with an attorney. Our lawyers at Lonich Patton Ehrlich Policastri are experienced at crafting a variety of trusts. Call us at 408-553-0801 to schedule your free consultation.