If you have started thinking about estate planning, one of your first priorities is probably to create a will (if you haven’t already). However, you may also be wondering if it would be worth it to establish either a revocable or an irrevocable trust. A trust may not be the best option for every estate, but there are several rationales for creating one. Reasons for wanting to create a trust may include:
- Avoiding the estate tax: Assets included in a trust are not calculated into the Gross Estate, meaning that setting up a trust may help some people avoid the estate tax altogether. However, this really only applies to our country’s wealthiest families, because in 2014, anyone with an estate that is valued at less than $5.34 million is already exempt from the federal estate tax.
- Avoiding probate: Assets left in a trust bypass the often lengthy probate process and go directly to beneficiaries.
- Maintaining privacy: Because assets that are not left in a trust must pass through probate, there will be a public court record. Families who wish to maintain privacy when it comes to the distribution of certain assets may choose to create a trust.
- Preparing assets for a time when an individual no longer has the ability to manage their own affairs: By setting up a trust and naming a competent trustee, an individual can ensure that those assets in the trust will continue to be managed even if they no longer have the capacity to manage their own affairs.
But even if you think that a trust is right for your estate, how do you know what kind to set up? The best way to determine this is to talk to a qualified trust administration attorney, but you can get started by going over the basics of revocable and irrevocable trusts below.
“Revocable” simply means that the person who creates the trust can change it at any time (for instance, the person might decide to change a provision in the trust or appoint a new trustee). The entire trust can actually be revoked if the person who created it decides that they no longer need it. The primary advantages of a revocable trust are that it keeps assets from going through probate, keeps the assets in the trust private, and allows an individual to name a Disability Trustee who will manage their trust if they become mentally incapacitated.
The main disadvantage of having such a flexible trust is that the trust assets are still factored into an individual’s personal assets both before and after their death. This means that anyone who has an estate that is worth at least $5.34 million (or whatever the estate tax exemption is set at in the year that they die) will still be subject to estate taxes, even if they have transferred a significant amount of their assets to a revocable trust. Revocable trusts also do not offer any creditor protection if an individual is sued.
Irrevocable trusts cannot be changed by the people who create them (except under very rare circumstances), so you need to be very sure that you want to set this type of trust up. These trusts are mainly beneficial to particularly wealthy individuals because, unlike with revocable trusts, assets held in an irrevocable trust will not be subject to estate taxes and are also protected from both creditors and Medicaid.
If you’re still unsure whether it would be advantageous for you to set up a trust, schedule a consultation with a probate lawyer at Wintter & Associates.
About the Author:
Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011, 2012 and 2014 in Estate and Trust Litigation.