Trusts are often used as part of an estate plan. Trusts use numerous benefits to the recipients of a decedent upon death such as avoidance of probate along with possibly avoiding payment of estate taxes. Advantages to the decedent consist of the capability to manage how the trust assets are used even after death.
A trust can be either an inter vivos trust or a testamentary trust. An inter vivos trust implies the trust became active during the life time of the grantor while a testamentary trust does not trigger until the death of the grantor. In addition, a trust may be revocable or irrevocable. An irrevocable trust offers attractive advantages for anybody worried with estate planning problems such as probate and estate taxes.
As implied by the name, an irrevocable trust can not be modified or ended except under certain specific situations. While a revocable trust can typically be modified or terminated at any time by the grantor, an irrevocable trust is not so easy to alter or terminate. State laws govern trusts; nevertheless, in the majority of statesman irreversible trust can only be customized by agreement of all beneficiaries and the grantor, if still alive, or by a court. Because of the irrevocable nature of these trusts, assets positioned in the trust are considered to be trust property from the minute of creation of the trust. This element of an irreversible trust provides 2 crucial advantages– avoidance of probate and avoidance of estate taxes.
Only possessions that are owned by the decedent at the time of death are part of the decedent’s estate. In case the decedent’s estate is needed to go through probate, all possessions owned by the decedent are held up till the probate process is completed. Probate can take months, or perhaps years sometimes, to complete. Properties placed in a revocable or an irreversible trust can pass straight to the recipients upon the death of the grantor, thereby avoiding probate. In addition, because the assets positioned 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 income there from or usage of the properties during life, and unless it was transferred within 3 years of death). The estate tax rate goes through alter, however is typically high, making an irrevocable trust a financially sound choice as part of an estate plan.