There can be many benefits to establishing a trust-based estate plan. If you have decided that this is the right type of plan for your situation, it can be beneficial to understand a little more about your options.
A living trust is a type of trust that is created during your lifetime. It allows you to place assets into the trust to be managed by someone of your choosing. This person, called the trustee, will manage your assets on behalf of the beneficiaries according to the details of the trust.
Control versus protection
Living trusts can be either revocable or irrevocable. The obvious difference between these two is that a revocable trust can be altered or revoked by you, which you can’t do with an irrevocable trust.
This type of control is a big reason why revocable living trusts are so popular. If you want, you can even name yourself as the trustee, which means you can continue managing your assets almost the same way as you did before they were in the trust. However, there are some drawbacks to this.
Property held in a revocable living trust does not have the same level of protection that an irrevocable living trust has. Because you have so much control over the assets in a revocable living trust, the property in the trust can still be considered your property in certain circumstances.
Property that is in an irrevocable living trust is better protected because you do not have as much control over it. For example, property in an irrevocable living trust cannot contribute to the value of your estate. This means it is not counted against your eligibility for certain government benefits, it cannot be taken by creditors to satisfy your debts and it is not subject to estate tax after you pass away.
Both revocable and irrevocable living trusts have their advantages and disadvantages. The right one for you may depend entirely on your unique situation and estate planning goals.