Your will is the foundation of your estate plan. Most people are aware of a will and its purpose, but trusts can also play an important role in your estate plan. Trusts may be included within a will and used in a similar way to, or alongside a Will. Today we’ll be breaking down the difference between a trust and a will because while everyone needs a will, you may also need to consider a trust for your estate plan.
What is a Trust?
A trust is a part of your estate plan which may contain a mix of different assets. To use a trust, the property is transferred into it, and the trust is now considered to be the owner of those assets. You will also name a trustee of your trust who will be the person to carry out the plans detailed in your trust and manage the distribution of assets. Common uses for trusts are to ensure that assets are properly distributed to specific loved ones, known as the beneficiaries of the trust. This is frequently used to distribute assets to those who are too young to inherit them for the time being, or who have special needs and require the assets to be managed for them. Your chosen trustee will manage the distributions to your beneficiaries as your plan specifies.
An irrevocable trust is also available but can be significantly riskier than a revocable trust, as you’re unable to change the terms of an irrevocable trust, and to reap any tax benefits you may have to surrender the right to be a beneficiary at all. Irrevocable trusts are considered separate tax entities, complete with their own tax identification numbers. As such, the tax liability of the assets within the trust is now paid directly from trust assets instead of your personal assets. If your trust generates income, you may be unable to access the income that the trust generates.
The Benefits of a Trust
Trusts will allow you to manage how your assets are to be distributed for a longer duration than a will on its own. The trust will allow you to dictate how the assets are handled by the trustees, giving you significant control over how and when they are distributed. Revocable trusts allow for you to manage the trust during your lifetime. Then your designated successor trustee will manage the Trust assets as directed by the terms of the Trust. Irrevocable trusts may allow you to manage the trust during your lifetime, but doing so will often restrict you from also being a beneficiary, eliminating the ability to reap the rewards of your trust’s assets.
Which Should I Include in my Estate Plan?
The good news is that your estate plan can contain both a will and a trust, so you don’t have to choose. You should always have a will even if you are including a trust in your estate plan. Your will can be used to transfer your assets into the trust after death. If the benefits of a trust are valuable to you, consider adding one to your estate plan. The Law Offices of Debbie J. Cunningham are available to advise you on the details of your estate plan and help decide what works best for you. To get started, call us today at (972) 292-7199.
Law Offices of Debbie J. Cunningham
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