You know that you need to start making some progress on an estate plan. You know that a will can only do so much, and you are thinking a trust is really what you need to protect your assets, yourself and your loved ones. Like many Texas residents, what type of trust will actually serve your best interests is confusing.
Before deciding on a trust, you need to determine what benefits you are looking to get out of it now. If you are wanting specific tax benefits, an irrevocable trust may be the way to go. What are the benefits of this trust type? What are the disadvantages?
The two most significant benefits offered with an irrevocable trust are that it can make probate obsolete, and it offers tax benefits while you are still alive. Unless the trust is challenging, after your death, the trustee has the right to start distributing assets in accordance with the terms of the trust — terms that you set. He or she does not have to wait for court approval.
When it comes to tax benefits, with this type of trust, you place the assets you want in it while you are still alive. This means they are not part of your taxable estate. This can cause tax saving during your lifetime and can certainly save your beneficiary from taxes after your death. Other known benefits of an irrevocable trust are:
- You remain in control of your assets.
- You have the ability to gift your residence to your beneficiaries for tax savings.
- You have the ability to place your life insurance policy in the trust so it is part of the death proceeds.
Your legal counsel can give more information about these and other benefits associated with an irrevocable trust.
The biggest disadvantage of an irrevocable is that you cannot change or terminate it without the approval of your beneficiaries. You also cannot take advantage of the trust benefits if you wish to be the trustee while you are still alive.
Setting up a valid irrevocable trust can be a complex process. Luckily, it is not something you have to do alone if you decide it is right for you. Legal counsel can answer any questions you have about this and other trust types, and can assist you in creating the trust that is right for you.