There are two major categories of trusts, one in particular that everyone should have. Regardless of their financial status, most people could have an estate plan incorporating a trust to eliminate the need for a will to go through probate, according to a recent article from Forbes, “Which Trusts Save Taxes, Which Do Not, And Which Are Illegal?”
Probate is the process by which a court reviews a will, approves it as valid and approves the named executor. Depending upon your jurisdiction, probate can take a very long time and be quite costly. Documents going through probate also become part of the public record, and anyone can read them. However, there is a way to keep your wishes private and avoid the expense of probate.
A revocable trust can be created, directing the disposition of assets. You will still need a will, but the will states that everything you own goes into the revocable trust. This is known as a “pour-over-will” since it pours all assets into the trust.
The trust is private, is not separately taxable and you may change it at any time. You may wish to add or subtract beneficiaries over time to be sure that the people inheriting your property are the ones you want.
A revocable trust is also tax neutral. Let’s say you transfer your house or stock into a living trust. It’s not considered a transfer for tax purposes.
The other major type of trust is an irrevocable trust. Generally speaking, once created and funded, assets in the trust may not be taken out of the trust, and the trust may not be amended. It is separately taxable and must file its own tax return. Transfers to an irrevocable trust can lead to gift taxes. However, it is an excellent means of saving income, gift, or estate taxes in the long run, depending upon how the estate is structured.
These trusts can be tricky, so be sure to work with an experienced estate planning attorney who is familiar with these trusts and the intricate details.
An estate planning attorney will craft an estate plan to achieve realistic goals of protecting assets, minimizing taxes and preparing the necessary documents to protect their clients.
Reference: Forbes (Nov. 24, 2023) “Which Trusts Save Taxes, Which Do Not, And Which Are Illegal?”