Given the relative ease of set-up and their flexibility, revocable trusts are a popular and convenient estate planning tool. Despite the scarier name and implications, however, irrevocable trusts can also turn out to be useful, depending on family circumstances. For example, irrevocable trusts can help families become eligible for public benefits.
Understanding the Difference: Revocable Vs Irrevocable
When a revocable trust is established, the grantor who creates it retains control of the assets, and can make changes to the trust at any time. On the contrary, when an irrevocable trust is created, the grantor relinquishes ownership of the designated assets, which is precisely why eligibility for public entitlements, as well as shielding assets from creditors, become possible. Another big difference between revocable and irrevocable trusts is that the grantor can be a trustee of a revocable trust, but never the trustee of an irrevocable trust.
Benefits of An Irrevocable Trust
Despite the gravitas involved in establishing an irrevocable trust, doing so can be very helpful, based on family circumstances and goals. Here are five pros associated with irrevocable trusts:
Minimizes estate taxes: By transferring assets to an irrevocable trust, grantors may be able to eliminate estate taxes on assets that go into the trust, though it will not eliminate capital gains taxes on assets later taken out of the trust by the beneficiaries. This approach can be valuable if you have fast-growing stock, for example, that can go into the trust today but then later can avoid estate taxes.
Protects assets from creditors: By ceding ownership and control of the assets to the trust, the grantor can avoid the reach of creditors in some circumstances.
Can allow eligibility for government programs: By moving assets to the trust, the grantor may become eligible for means-tested programs such as Medicaid, though there may be significant lookback periods before the grantor can become eligible.
Bypasses probate and can maintain privacy: The trust structure can help heirs move the estate through probate quicker, and the trust can shield the nature of assets from the…public.
Those considering an irrevocable trust are likely to find it reassuring to know that despite the name, irrevocable trusts can usually be changed, with the help of an attorney. For example, it may be possible to decant a trust if life takes unpredictable twists and turns after an irrevocable trust is set up.
Trustees and Trustee Bonds Explained
When trusts are established, trustees are named to administer the assets in them, based on the arrangements specified in the trust agreement. Trustees have fiduciary obligations and are held to exceptionally high legal standards,“the most important of which are the duties of loyalty and care, and the duty to act in accordance with the terms of the trust agreement.” Given the seriousness of the role, trustee bonds are sometimes required. Essentially, a trustee bond is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain trustee bonds: Just get a quote online, fill out the information, and enter a payment method. Then, simply print or e-file the bond from anywhere.
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