Some people think that you surrender complete control of assets that you place into any type of trust. They go forward with this assumption, and as a result they ignore the possibility of creating a trust.
Do you lose control of assets that you place into a trust? This is going to depend on the type of trust that you are utilizing. Let’s look at revocable living trusts.
Incidents of Ownership
Revocable living trusts are commonly used by people who want to avoid probate. Probate is a potentially costly and time-consuming legal process. If you use a last will to arrange for the transfer of your personally held property, the distributions will not take place until after the estate has been probated.
If you convey assets into a revocable living trust, these resources would be distributed to the beneficiary or beneficiaries that you name in the trust agreement outside of probate. As a result, they would receive their inheritances in a much more timely manner.
When you place assets into a revocable living trust, you can act as both the beneficiary and the trustee while you are still living. As such, you continue to control the resources. You can manage investments and take distributions.
In addition to this, the trust is revocable. You could rescind the trust at any time. Short of this you may change the terms of the trust at will.
You are retaining incidents of ownership when you create and fund a revocable living trust. You do not lose control of the resources.
Irrevocable Trusts
There are other types of trusts that are irrevocable. You do surrender incidents of ownership when you create this type of trust.
Trusts are often looked upon as instruments that are only useful for the wealthy, because irrevocable trusts are used to mitigate estate tax exposure.
If your assets do not exceed $5.34 million in value you don’t have to worry about the federal estate tax. Anything that you want to transfer that does exceed this amount would potentially be subject to the estate tax.
The utilization of an irrevocable trust of some kind could be part of a wealth preservation plan. Assets that have been conveyed into this type of trust may not be counted as part of your taxable estate.
Assets that are held by a revocable trust would in fact be part of your estate.
Explore Your Options
People sometimes make estate planning decisions without having all of the facts. You don’t lose control of assets if you place them into the right kind of trust. Given the fact that probate will slow things down if you use a will, you may want to consider a revocable living trust to facilitate a more timely transfer of assets.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
- Estate Planning for the Blended Family - May 20, 2020
- Does Indiana Have an Inheritance Tax? - May 13, 2020
- Wills and Trusts General Information - May 6, 2020
