When you want to protect your estate from hardship in the years ahead, you may start to explore the possibility of setting up a trust for your beneficiaries. There are no one-size-fits-all solutions to estate planning, which can make it confusing to know what vehicle is the best suited for your unique situation.
Would a revocable living trust fit your needs?
Before you call a legal advisor or a financial planner, learn the basics of what you need to know about these trusts here. From advantages to alternatives, this comprehensive guide gives a thorough look at how you can best protect your estate for decades to come.
What is a Revocable Living Trust?
Before deciding whether a revocable living trust is the right move to protect your assets and your estate, a basic understanding of the two terms is important. It will help you determine the next right move as you look toward the future for your beneficiaries and the loved ones you will leave behind after your passing.
First, a revocable trust allows you, the grantor, to make changes to the trust as long as you are alive. This means you can modify the terms or revoke them when they no longer serve your long-term needs. Before you pass, you will want to indicate a successor trustee who is able to make changes to the assets placed within the revocable living trust.
A living trust is one that you establish while you are still alive. Because you are still living when the trust is created (compared to a testamentary trust that takes effect upon death), the assets in the trust will pass to the named beneficiaries without probate or court interference.
In short, a revocable living trust is one that you make right now to pass assets to your beneficiaries upon your passing. It also allows you to modify the plans you make for them during your lifetime.
Advantages of a Living Trust
Are you considering a revocable living trust for your estate planning? The good news is that there are plenty of benefits to embracing this type of estate planning compared to that of an irrevocable trust.
It starts with an ability to make changes, which is something you can do on your own without an attorney. This saves you money, time, and headaches if you want to alter asset division. This flexibility is one of the biggest reasons why someone may choose a revocable living trust instead of an irrevocable one.
A revocable living trust also allows your loved ones to avoid probate upon your passing. This can be a lengthy and expensive process, made more difficult because of their bereavement over losing you.
Another important point about the advantages of a revocable living trust is the ease of a transition if you were to become incapacitated and unable to make decisions for some reason. Upon the initial setup of the trust, you will name a successor trustee who can take over. That means that benefits and income from the trust can continue to flow in, setting you up for financial success in the midst of an unthinkable situation.
Revocable Living Trusts vs Irrevocable Living Trusts
When it comes to revocable vs irrevocable trusts, both have their share of pros and cons in estate planning.
The main downside is that irrevocable trusts are inherently less flexible, so it is key that you understand the long-term implications of a decision made upon establishing the trust with your attorney.
However, this can also be to your benefit. Irrevocable trusts come with incredible tax benefits that revocable trusts lack.
For example, an irrevocable trust removes all assets placed within it from your estate. This means your beneficiaries may not have to pay estate taxes on the assets and income. Instead, this will all be taxed by the trust rather than on an individual return with the IRS. If you choose to set up a charitable remainder trust, you will also benefit from charitable tax deductions.
Another important point to consider is protection from creditors. If you name a beneficiary who may have financial issues with creditors in the future, you do not want their inheritance to be a part of a legal settlement. An irrevocable trust cannot be considered in these types of judgments. This works for divorce and bankruptcy, too; it’s quite handy these days.
Consider Irrevocable Charitable Remainder Trusts
A charitable remainder trust might be your ticket to managing an irrevocable trust. This trust allows you to donate assets and draw an income for a set period or for a lifetime. You might also name a beneficiary to receive that steady income.
At the end of the trust, a minimum of 10 percent must be donated to a charity (or charities) of your choice.
This allows you to make double the impact: Your beneficiary is financially supported throughout their lifetime, and you can make a sizable impact on a charity near and dear to your heart.
Just keep in mind that once assets are placed within a charitable remainder trust, they no longer belong to you, and it is much harder to alter the terms compared to revocable living trusts.
Get Support for Trust Formation at Magellan
If you are thinking about setting up a revocable trust or a charitable remainder trust, then you need the expertise of a team of professionals who know the ins and outs. At Magellan, we offer comprehensive estate, financial, legal, and tax planning for a one-stop shop approach to setting up a charitable remainder trust.
Reach out to us today to learn more about our services and let us guide you toward making the right long-term choice for your estate planning.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.