Trusts are frequently used as part of an estate plan. Trusts offer many advantages to the beneficiaries of a decedent upon death such as avoidance of probate in addition to potentially avoiding payment of estate taxes. Benefits to the decedent include the ability to manage how the trust properties are used even after death.
A trust can be either an inter vivos trust or a testamentary trust. An inter vivos trust means the trust became active throughout the lifetime of the grantor while a testamentary trust does not activate until the death of the grantor. In addition, a trust may be revocable or irrevocable. An irrevocable trust offers attractive advantages for anyone concerned with estate planning issues such as probate and estate taxes.
As suggested by the name, an irrevocable trust can not be customized or terminated except under certain specific circumstances. While a revocable trust can usually be customized or ended at any time by the grantor, an irrevocable trust is not so easy to alter or terminate. State laws govern trusts; however, in a lot of statesman irreversible trust can just be customized by contract of all recipients and the grantor, if still alive, or by a court. Since of the irreversible nature of these trusts, properties placed in the trust are considered to be trust property from the moment of development of the trust. This aspect of an irreversible trust offers 2 crucial advantages– avoidance of probate and avoidance of estate taxes.
Only assets that are owned by the decedent at the time of death belong to the decedent’s estate. In the event the decedent’s estate is needed to go through probate, all properties owned by the decedent are held up until the probate procedure is finished. Probate can take months, and even years in many cases, to finish. Properties positioned in a revocable or an irreversible trust can pass directly to the recipients upon the death of the grantor, thus preventing probate. In addition, since the properties placed in an irreversible trust are no longer considered to be owned by the grantor, and are not part of the estate at the time of death, they are also not subject to estate taxes (unless the grantor is entitled to enjoy the earnings there from or use of the properties during life, and unless it was moved within 3 years of death). The estate tax rate is subject to alter, but is usually high, making an irrevocable trust an economically sound option as part of an estate plan.