Getting your affairs in order and safeguarding your future as well as your loved ones is one of the most responsible decisions you can ever make whilst you are alive and in sound mind. This is where estate planning comes in.
One of the most important estate planning tools you can use to protect your assets and loved ones is a trust. Basically, this is a legal entity that allows you to transfer ownership of certain assets to the trustee. Done right, you can derive a range of benefits from a trust.
Trusts are broadly grouped into two categories: revocable and irrevocable trusts. So how do you choose the right trust for your estate planning needs?
Understanding revocable trusts
A revocable trust is amendable. This means that you can change or update it at any time as long as you are alive and of sound mind. If you are looking to set up a trust and still maintain control over your estate and assets, then you might want to consider a revocable trust.
Here are some of the benefits of setting up a revocable trust:
- It gives you the flexibility to make amendments as you wish
- It protects the assets placed on the trust from going through probate
Revocable trusts have their drawbacks too. Some of these include:
- Non-protection from income and estate taxes
- Non-protection from creditors
Understanding irrevocable trusts
Unlike revocable trusts, you may not amend, terminate or change an irrevocable trust without involving the court or receiving consent from the beneficiaries. In other words, you cannot control the assets you place on an irrevocable trust. Some of the benefits of irrevocable trusts include protection from estate taxes as well as creditors.
Understanding the difference between revocable and irrevocable trusts can help you make an informed decision.