Using a trust to distribute your assets can make life easier for both you and your beneficiaries. Why? For starters, unlike wills, trusts don’t go through a probate court after one passes away. If you use a trust, you know your assets will go to those you intended. Avoiding probate will also save your beneficiaries both money (probate can cost as much as 4% of the estate) and time (the probate process can take months or even years).
While there are many different types of trusts, all trusts will fall under one of two main categories. A trust will either be a Revocable Trust or an Irrevocable Trust.
What is the Difference between a Revocable Trust and an Irrevocable Trust?
Revocable Trusts
A Revocable Trust gives you the right to terminate the trust, change the trust and regain control of the trust assets after it has been established. This is a very popular type of trust in the United States because it allows for flexibility and change if you get divorced, acquire new assets, etc. The trust guidelines only become permanent after you pass away and you are free to change the trust guidelines, as many times as you would like, until that time.
In most states, if you have a revocable trust you are responsible for tax payments and reporting returns on investment. Also, because you can regain control of the assets, this type of trust is vulnerable to creditors.
Irrevocable Trusts
An Irrevocable Trust is permanent and you cannot modify the trust after it is created. Given that an Irrevocable Trust is permanent; one might wonder why anyone would want to create an irrevocable trust. The main benefit is that the assets in an Irrevocable Trust are protected from creditors (as long as there weren’t any creditor claims before the trust was created). Trust assets would also be protected from beneficiaries’ creditors and perhaps even Medicaid.
Do I want my Trust to be Fixed or Discretionary?
After you decide whether you would like to put your assets in a Revocable or Irrevocable Trust, you will have to decide how you want your assets to be distributed. A fixed trust distributes assets at specified times and/or amounts. The terms of distribution will be specified in the trust documentation. By contrast, a discretionary trust, gives discretion to the trustee (the individual who you appoint to manage the trust) on how assets should be distributed to the beneficiaries. You can voice your intent on how you want your assets distributed, but the ultimate decision is that of your trustee.
More Information
There are additional types of trusts that fall into the categories above so if a trust is something you are interested in, you should meet with an estate planning attorney to see if there is a more specific type of trust that fits your needs. For example, you may want a marital trust for your spouse’s benefit in the event of your death, a charitable trust that would give a certain amount of your assets to a charity or a generation-skipping trust that would allow you to skip over your children and give your assets to your grandchildren. Working with an estate planning attorney is the key to making a well-informed and confident decision on the type of trust to establish.
Mestayer Law Firm provides civil litigation for clients throughout the Gulf Coast area including Pascagoula, Biloxi, and Gulfport. If you are making future plans for your estate, then contact us today and let us help take care of every detail of your finances. Call us today at 228-762-1193 or visit www.pascagoulalaw.com. We are your legal experts! You can also visit our office located at 2128 Ingalls Ave. in Pascagoula, Mississippi. We look forward to talking with you!
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This article does not create an attorney-client relationship. I am licensed to practice law in Mississippi and have based the information presented on US laws. This article is legal information and is for entertainment and informational purposes only and should not be seen as legal advice. You should consult with an attorney before you rely on this information. Any information provided in this blog is accurate and true to the best of my knowledge, but that there may be omissions, errors, or mistakes.