It’s hard to decide. Do I go the classic route and create a ordinary Will, or do I create a Revocable Trust? We will dive in and explain why you should pick a Revocable Trust..
By Tripp Wiles | December 15, 2018
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A common misconception is that a will and a Revocable trust are the same document. A will and a Revocable trust are completely different forms of estate planning. The most basic difference between the two is that a will cannot be activated until death; while a Revocable trust is in effect as soon as it is signed.
Since a will is not in effect during a person’s lifetime, one must rely solely on a power of attorney in the event of disability or incapacity. Failure to execute a power of attorney can result in court appointed conservatorship. With a conservatorship, the court appoints someone to manage a person’s assets. In recent years, banks and other financial institutions have become increasingly concerned over the risks and liabilities involved with honoring power or attorneys. In some cases, institutions refuse to honor a power of attorney. If this occurs, a court appointed conservatorship is often initiated.
When a person’s property is titled in the name of the Revocable trust, there is no need for court order conservatorship, and an incapacitated person’s assets can be administered privately.
Another difference between a will and a Revocable living trust is the administration of that property at death. A will requires a probate and a trust does not. Probate involves court administration.
The differences between a will and a Revocable trust are important to know. If you do not have a will or Revocable trust in place, talk to an attorney that can assist you in deciding which is better for you.
While Revocable living trusts provide a probate free transition of assets, Irrevocable trusts can be an advantageous way to gift assets. The benefits of an Irrevocable trust can include favorable tax benefits, an inability for creditors to attack the assets held in the trust, and greater control of how the assets are distributed – a power that can last past a person’s death, a popular reason that many Irrevocable trusts are part of estate planning.
In the simplest terms, an Irrevocable trust is created when a person, called a Grantor, places assets into an Irrevocable trust and provides a set of instructions detailing both how the assets should be managed and who should receive the assets. The person responsible for administering the Irrevocable trust is referred to as the Trustee, while those receiving the distribution of assets are called the Beneficiaries. After the Grantor has placed the assets, which can range from cash and stocks to precious artwork, into the Irrevocable trust, then the Trustee will oversee and manage the Irrevocable trust.
Tax Benefits. The potential tax benefits are one of the most popular reasons to move your assets into an Irrevocable trust. Once the assets are transferred to the Irrevocable trust, they are no longer legally owned by the Grantor and are now technically owned by the Irrevocable trust. Consequently, the income derived from those assets is no longer taxable income for the Grantor. Perhaps more importantly, the assets will not be included in the probate process.
Shield Creditors. Because the Grantor no longer owns the assets in the Irrevocable trust, creditors will not be able to reach the assets. This benefit is two-pronged. First, if the Grantor were to run into financial trouble later in life he will still be able to provide for the beneficiaries he or she has named in the Irrevocable trust. Secondly, compared to the alternative of leaving the assets as an inheritance in a will, assets left to beneficiary of an Irrevocable trust are protected from creditors.
Greater Control over Assets. Creating an Irrevocable trust legally requires relinquishing ownership of assets. Irrevocable trusts, perhaps ironically, actually may end up providing the Grantor greater control of his or her assets. In addition to the previously discussed ability to keep the assets from future creditors, Irrevocable trusts provide greater control over assets in two other ways.
First, the level of control regarding how the assets are used and distributed extends past the Grantors life. An inheritance comes in a lump sum upon a person’s death, limiting the ability for the assets to be distributed according to the would-be Grantor’s wishes to his lifetime. Further, the Grantor possesses almost unlimited power to dictate the terms of the Irrevocable trust and the conditions when assets will be distributed. Irrevocable trusts distributions can be limited to specific uses – paying for college, for example – or triggered at certain life points – graduating from college or turning a certain age.
Irrevocable trusts are a valuable estate planning tool.
Tripp was born in Charleston, South Carolina. He graduated from The Citadel with a B.A. in Political Science and holds a M.A. from Hawaii Pacific University in Diplomacy and Military Studies. Tripp earned his Juris Doctorate from the University of Memphis Cecil C. Humphreys School of Law. He is a former Army officer and served in Germany and Macedonia. He is a former research analyst for both the U.S. Army Central Identification Laboratory-Hawaii and the Defense POW/Missing Personnel Office. Tripp is the author of the book Forgotten Raiders of ‘42. In December 2013, Tripp was appointed by Governor Nikki R. Haley to serve on the Charleston County School Board and was later elected for another term. Over the past decade Tripp has assisted hundreds of individuals in protecting their families and preserving their legacies through customized estate plans and Irrevocable and Revocable trusts. Tripp enjoys spending time with his wife and their three children.