In estate planning, trusts enable individuals to set aside money for specific beneficiaries to inherit at a pre-determined time, usually upon their death.
Types of Trusts: Revocable and FixedThere are two basic types of trusts: fixed trusts and revocable trusts. As their name implies, fixed trusts are fixed in place and cannot be changed once they are established. Revocable trusts, on the other hand, can be freely altered during the grantor’s lifetime. Once the grantor has passed away, the trust becomes fixed.
What Is A Revocable Trust in Estate Planning?A revocable trust is a special type of trust that can be altered while the grantor is still living. As such, it provides certain types of freedoms that a fixed trust does not.
The money held in trust for a beneficiary is called the principal of the trust. With a revocable trust, the principal can fluctuate over time, usually in line with interest, depreciation, or the trustee’s expenses. It can also be changed based on the grantor’s request.
What Are the Benefits of A Revocable Trust?The primary benefit of a revocable trust for estate planning is increased control over your assets. With this type of trust, you can decide how funds are distributed and when, change the amount of the principal, and even cancel the benefits at any time if you wish. It’s truly up to you.
Revocable Trust Vs WillAt the same time, revocable trusts are more secure than wills and helps your beneficiaries avoid a lengthy probate process upon your death. Revocable trusts provide financial protection and management for a variety of different life circumstances and can be used for prenuptial purposes, to allocate money for a loved one with special needs, or to allow someone to become of legal age before inheriting a large sum of money. These are just a few examples. Revocable trusts can be used in any number of unique situations.
Should You Choose a Revocable Trust?Despite the many benefits of revocable trusts, they are not for everyone. They are often more complex and more expensive to set up than fixed trusts and they may need to be maintained more carefully. Moreover, you may not receive the same tax benefits with a revocable trust as you would with a fixed trust. An experienced estate lawyer can assess your individual situation and help you decide whether a revocable trust or fixed trust will better fit your needs.
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