Trusts come in many different shapes and forms. A living trust is one type of trusts. That's right, there are many different types of trusts. Living trusts are ones created during lifetime. They are also called "inter-vivos", a Latin term meaning "among or between the living"
The phrase "revocable trust" does not refer to any one specific arrangement. It involves a range of various trusts. Each of them can be used to accomplish different objectives.
Such trusts can be revoked. In other words, they can be amended or terminated altogether. The ownership of property contributed to revocable trusts changes on paper. But, you are still in full control. You can continue to manage and enjoy such property same as before.
Regardless of what you may see or hear elsewhere, revocable trusts do not affect your income, estate and gift taxes. Any tax planning provisions in your revocable trust can be implemented without a trust.
Don't waste your time and resources on a revocable trust if your only intent is to achieve the tax savings. This can frequently be achieved by means that are less expensive and time-consuming.
Property transferred to a living trust during lifetime avoids probate. This alone is a compelling reason to set one up. But, keep in mind that your assets can be kept from the probate process by other means.
Even if you are still alive, both you and your property could be subjected to a legal process in the probate court if you become incapacitated. Remember, even young people may become physically or mentally disabled. In such cases, living trusts can be used to keep your property away from the probate system. Other documents should be also utilized to protect your body and soul from the system.
The term "irrevocable trust" also does not involve just one specific trust. Rather, it refers to a wide spectrum of different trusts. Irrevocable trusts mean a loss of control. Once your property is transferred, you can't take it back. You cannot amend or terminate an irrevocable trust.
Now, is it not foolish to voluntarily give away your property? Well, it all boils down to what your individual situation and goals are. Many good things in life come at a price. Transferring your property to an irrevocable trust can bring significant benefits.
Tax savings is one of them. A properly designed and drafted irrevocable trust can reduce income, gift and estate taxes. Such trusts can also provide an additional layer of protection from creditors.
Both revocable and irrevocable trusts remove your property from probate. This legal procedure can devour a significant portion of your estate. The physical costs are not necessarily the end of it. The surviving family members can be at the mercy of probate judges and court-appointed attorneys in many respects.
In many situations, living trusts are the most effective and flexible tools used to hold the title to your property. They should always be given a serious consideration in your estate plan.
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