People who are creating an estate plan often want to ensure their loved ones get the intended assets. Some people assume they can write all this down in a will and that it will be followed when they pass away. There are a few disadvantages to that. The will becomes public record so your loved ones don’t have privacy. It’s possible that the will might be contested.
One alternative to writing down the asset distribution plan in the will is to set up trusts. There are two broad categories of trusts – irrevocable and revocable. Understanding the differences between these two enables you to determine which is best for your situation.
#1: Changing the terms
You can change the terms or dissolve a revocable trust, but you can’t do that with an irrevocable trust unless you have the permission from everyone in the trust. If you’re setting up an irrevocable trust, you must ensure that you’re completely comfortable with the terms. Once the irrevocable trust is funded, the trustee is over the assets and you don’t have a say over what happens to them any longer.
#2: Creditor protection
Irrevocable trusts are protected from your creditors, but that’s not the case for a revocable trust. Since you don’t have control over assets in an irrevocable trust once it’s funded, creditors who sue you can’t touch those assets. This enables you to pass down as much as possible to your loved ones. Because you retain control over assets in a revocable trust, creditors can stake claim on those assets in a lawsuit.
Regardless of which type of trust you choose for your estate plan, remember that you must fund it if you want the contents of the assets to have the most protection possible. Some trusts can be automatically funded when you pass away, but this might not be what’s best for your situation.
A trust is only one component of a comprehensive estate plan. Working closely with someone who can help you to get everything in order can give you peace of mind. Doing this as soon as possible is beneficial for everyone involved.