As you begin the estate planning process, it can be easy to get bogged down with the many possible documents to include in your final estate plan. Understanding the advantages and disadvantages of various tools used to distribute assets can help you ensure your family is protected for many years to come.
One estate planning tool that has proven to be beneficial to many Michigan residents is the trust. There are two types of trusts, irrevocable and revocable, and each has its own pros and cons.
A revocable living trust is created during your lifetime, when you, as the grantor, puts funds into the trust and assign beneficiaries. You can also name a successor trustee to manage the trust if you ever become incapacitated. The terms of the trust can be changed at any time throughout your life and you can revoke the entire trust if necessary. A revocable trust only becomes irrevocable once you pass away.
With a revocable trust, the grantor can ensure that their wishes are carried out if they become incapacitated and allow their assets to immediately go to named beneficiaries, bypassing the probate process. Revocable trusts also allow you to maintain privacy, as your assets and beneficiaries will not be accessible to the public.
However, with a revocable trust, any assets placed in the trust still belong to you and therefore can be accessed by creditors and be subjected to state and federal taxes as part of your estate when you die.
Irrevocable trusts are similar to revocable trusts, but unlike revocable trusts, cannot be changed or revoked by the grantor once it has been created and funded. However, once the assets are placed in the trust, they no longer belong to the grantor, and therefore, will not be a part of the grantor’s estate or subjected to estate taxes. Creditors also will not have access to the assets in an irrevocable trust.
Choosing which trusts work best for your estate plan can be difficult. An estate planning attorney in the Novi area can review your assets and make recommendations as to which type of trust will best serve you and your family.