Managing your finances requires attention to all monetary issues, including the details of how your money will continue to benefit your family after you die. This aspect of financial planning, known as estate planning, may even help eliminate the possibility of family feuds that often occur after the death of a loved one. While a will allows you to express your wishes regarding issues surrounding your death, such as guardianship of your minor children and division of your personal belongings, trusts provide directives both during and after your lifetime.
A revocable trust, also called a living trust, allows you to place your assets under a separate entity. This legal document transfers your belongings from your personal ownership to a trust ownership, according to Montana State University. This type of trust provides for both your future and the future of your beneficiaries. Designating yourself as the trustee allows you to make changes to your trust when necessary. Listing a successor trustee designates another individual to take over the management of the trust when you die or become incapacitated.
Revocable trusts often revert to irrevocable trusts upon the death of the grantor, the person who sets up and contributes to the trust. This ensures that your successor trustee won’t make changes to your directives after you die. You can also set up an irrevocable trust during your lifetime that allows you to contribute deposits to the trust, while eliminating your ability to cancel or change the trust.
Both revocable and irrevocable trusts offer certain benefits for the grantors and beneficiaries, such as eliminating the probate requirement for your will and resolving possible areas of conflict between your beneficiaries. The main difference between a revocable trust and an irrevocable trust is the possibility of making changes to the directives. A revocable trust allows you to keep your options open and restructure your designations as you like. An irrevocable trust enables you provides a permanent plan that the surviving spouse can’t change in the event of remarriage after your death, giving you the peace of mind that your property will go to the individuals you designated.
Placing your assets into an irrevocable trust while you are living will eliminate your options of changing your plans if you have a change of heart, while a revocable trust may not provide the permanency you may want to impose once you determine how you want to divide your belongings. Ohio State University warns that gift tax liability may result when you transfer your valuables into an irrevocable trust. However, don’t make the mistake of thinking that creating a revocable trust will help you avoid the tax collectors. According to the University of Florida, you will need to continue to pay taxes on your revocable trust while you are alive.
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