If you are thinking about incorporating a trust into your estate planning, you may first want to consider whether the need is there. According to CNN Money, recent changes to the federal tax law have doubled the federal estate tax exemption to about $11 million for a single person’s estate, or $22 million if it is a couple’s estate. However, you may have other reasons for creating a trust. Maybe you are setting up a trust because your children are minors, to protect your assets, to give gifts to charity, to avoid the probate process, or to save on other taxes.
Differences between the revocable and irrevocable trust
As you may have guessed, a revocable trust can be changed, and it remains a part of your estate. An irrevocable trust cannot be changed after it is set up, and it moves the assets out of your estate.
Benefits of an irrevocable trust
If you are concerned about your assets being lost, an irrevocable trust removes the property from your possession. If you are sued or pursued by creditors, the assets in an irrevocable trust are protected. With a revocable trust, your property would still face potential threat.
An irrevocable trust could potentially save you paying federal estate taxes. If your estate is close to that $11 million or $22 million mark, depending on your marital status, you can place some of your assets into an irrevocable trust and separate these from the estate. That could save you from paying federal estate taxes. With an irrevocable trust, you may also be able to avoid encountering capital gains taxes.
Perhaps you are planning to set up an irrevocable charitable trust. If you do so while you are still around, you can take a charitable tax deduction on that property.
Benefits of a revocable trust
The most obvious benefit of a revocable trust is you maintain control over your assets. It allows you to make any desired changes before your passing. Also, if you are not concerned about tax issues, a revocable trust may be the best option. Another reason a revocable trust may be a good idea is if your family has a history of diseases like strokes or Alzheimer’s. If you become incapacitated, the appointed trustee can manage your assets. Think Advisor states you can even provide guidelines for the trustee to carry out, in case you are unable to do so.
Trusts provide financial privacy
Whatever option seems best for you and your beneficiaries, both types of trust provide privacy. When a will is probated, it becomes a public document. A trust is a private document that keeps all your financial information confidential. If that is a concern, a trust may be your best option.