The importance of estate planning is undeniable. If you want to protect your parents’ emotional, financial, and physical well-being, you need to start talking about powers of attorney designation, wills, and trusts. As you do this, it’s important to understand what revocable trusts and irrevocable trusts are and how they differ.
A trust is a tool that takes assets and determines how they would be split. With a trust, rules can be put in place to ensure money is there for a grandchild who is not yet of age. Rules may limit how often disbursements are given to a family member who may not spend wisely.
Often, a trust goes hand in hand with a will. The will may include the division of assets like cars and jewelry while the trust is usually used to split the money from stocks and other investments, bank accounts, and life insurance.
What Is a Revocable Trust?
A revocable trust involves designating what happens to assets later in life. The person who owns the assets (the grantor) chooses how assets are to be split upon his or her death. Until that time, he/she retains possession of the assets and gains any income earned on assets.
Revocable trusts can be terminated or changed as desired. The grantor simply calls his/her elder law attorney and has the changes drafted. Upon death, the assets are then transferred accordingly by a designated trustee. Assets not accounted for in the trust should be included in a will.
Until death, the grantor is still responsible for taxes due on the assets involved. Setting up the trust doesn’t remove any tax burden.
How Does it Differ From an Irrevocable Trust?
With an irrevocable trust, you remove some freedom to make changes. Once the irrevocable trust is signed and notarized the person who established the trust (the grantor) no longer has control over the assets. Changes cannot be made without the beneficiary or beneficiaries agreeing to them.
For example, your parents created a trust that gives all siblings each a share of the assets, but a family argument leads to one sibling refusing to ever see or speak to the family. Your parents want to remove that sibling from the trust, but all beneficiaries need to agree to the change. That may be tricky.
One of the benefits of an irrevocable trust is that the assets are no longer owned by the grantor. That eliminates that person from having to pay taxes in some cases. It varies depending on state and city laws and should be discussed with an experienced attorney in elder law.
Setting up either trust requires the expertise of an attorney who specializes in estate planning. It’s not something you should try to do yourself. Call an elder law attorney to find out more.
If you or a loved need assistance with Elder Law in Vestavia, AL contact Nolan Elder Law & Estate Planning today. (205) 390-0101