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What role do trusts have in estate planning?

On Behalf of | Dec 28, 2023 | Estate Planning

Protecting the assets you want to pass down to your loved ones is a primary consideration when developing your estate plan. While many opt to achieve this aim using a will, there’s another option – trusts.

Trusts are valuable estate planning tools that enable you to dictate who gets what, when and how they get it. There are several things to consider if you want to include a trust in your estate plan.

What are the categories of trusts?

There are two primary categories of trusts – irrevocable and revocable. The primary difference between these options is that you can’t change an irrevocable trust but can change a revocable one if you choose to in the future.

Within each category of trust, there are several types. Each type serves a different purpose, so you should carefully consider your wishes and specific circumstances before committing to a particular approach.

What should you know about irrevocable trusts?

Once you fund an irrevocable trust, dedicated assets are protected from creditor claims against you or the trust’s beneficiaries. This ensures that your loved ones will receive the contents of the trust as you intend. An irrevocable trust also has tax benefits because its assets aren’t counted as part of the estate.

What should you know about revocable trusts?

You don’t have creditor protection with a revocable trust because you retain control of the assets until you pass away. These assets are still counted as part of the estate, so there’s no tax benefit to establishing this resource, although there are other benefits associated with its construction.

Both types of trusts provide privacy for the beneficiaries because the trusts don’t go through the probate court. Utilizing this option as part of your estate plan may give you peace of mind since you know your loved ones are cared for and that dedicated assets can’t be fought over in the ways they might if you passed them using a will.