Why Creating a Trust is Crucial for Estate Planning

If you’ve ever sat down to create a will or trust, you know how daunting it can be. You may not even know where to start. However, it is vital to develop trust to ensure estate planning and asset distribution after your demise is smooth.

But the sad part is that many Americans still don’t have a will. According to data from Consumer Reports, only 1 out of 3 Americans say they have a will. The number is lower for people of color. This article will look at why creating a trust is crucial for estate planning and how easy it can be with LegalZoom’s online legal solutions.

Can You Revoke a Trust?

What if you create trust but want to change it for some reason? Can you revoke a trust? The short answer is yes. You can create two types of trusts, revocable and irrevocable, and whether you can revoke it or not depends on the type. A person who created the trust can cancel it at any time if it is revocable. They just need to notify everyone involved in the process of their decision.

According to Thienel Law, the revocation of trust includes removing all assets held in the trust by transferring ownership titles, deeds, and other legal paperwork from the trust’s name back to the name of the settlor.

The company also states that the settlor should prepare a written document that declares the settlor’s decision to cancel all terms and conditions of the trust per the settlor’s rights under the trust terms and legal regulations.

Thienel Law is a law firm operating in Maryland. The company helps its clients with business, tax, estate planning, and elder law.

This means you can revoke a revocable trust. However, if the trust is irrevocable, you cannot cancel it. This is because you have already transferred ownership of assets to the trustee and no more have rights to them. But the trustee has the power to terminate the irrevocable trust.

Benefits of a Trust for Estate Planning

A trust can be used to avoid probate, control asset distribution, and protect beneficiaries. It also reduces estate taxes and helps you plan for the future. However, this changes from place to place. For example, if you are in California, you can simply avoid probate if you don’t have a wealth of more than $166,250.

But despite the changing regulations from place to place, a trust can offer you several benefits, including the following:

Trust Offers Control Over Asset Distribution

A trust lets you control how your assets are distributed, who receives them, and when. You can appoint a trustee to manage the trust and decide how your money is spent. If you decide to leave a portion of your estate in cash or other liquid assets, such as stocks or bonds, it will be up to them whether or not these items should be sold off or kept in place until an heir reaches adulthood.

If any minor beneficiaries are involved with this type of planning strategy, it may be wise for them to have some say in how things work out once they reach adulthood. Therefore, it might make sense for each beneficiary’s guardians to be named co-trustees alongside whoever else manages all matters related specifically to said individualized situations.

Trust Offers Privacy and Avoidance of Probate

A trust is a legal entity created by a grantor, which allows him or her to transfer assets into the name of the trust. Once this has been done, it’s no longer his or her property. The trust itself now owns it.

The most common types of trusts are irrevocable and revocable living trusts; each has its advantages and disadvantages. An irrevocable living trust cannot be changed once it’s established. However, some prefer this option because they want their assets managed according to their wishes after death rather than through probate court proceedings.

A revocable living trust allows flexibility in changing how your assets are distributed during life but offers less privacy than an irrevocable one does when passing away. Both parties must sign off on any changes made before they become official.

Trust Offers Tax Benefits

You can avoid capital gains tax. If you have a trust, the assets in your estate will be taxed at the lowest rate possible when passed on to beneficiaries. For example, suppose you hold property that has been appreciated and pass it along to your children through a trust instead of directly giving them the money. In that case, there are no capital gains taxes on that transaction because, technically, no sale occurred.

You can avoid estate tax by transferring assets before death. The federal estate tax is levied against estates worth more than $11 million as of 2019, so many people choose not to wait until after passing away before setting up their financial planning needs with trusts. Also, there’s news that the estate tax exemption will increase in 2023. For those who pass away in 2023, the exemption amount will be $12.92 million.

Types of Trusts for Estate Planning

Broadly, there are two types of trusts you can choose from:

• Revocable Living Trust: A revocable living trust is a type of estate planning vehicle allowing you to transfer assets into a trust that will become irrevocable after your death.
• Irrevocable Trust: An irrevocable trust cannot be changed once created. Therefore, it’s more difficult for someone else to challenge its terms or change them outside of what was originally intended by those who created it.

How to Create a Trust for Estate Planning

The first step to creating a trust is deciding its beneficiaries. These are the ones who will be managing and distributing the trusts that are under your name and a part of the trust you are preparing. They’re named in the document itself, and you can name multiple individuals if you want them to share duties or responsibilities.

Next comes naming a protector who can make decisions for minor children or people with disabilities if they cannot do so themselves due to illness or injury.

Finally, some kind of advisor must be appointed so that this individual has access to any information necessary for advising you on matters related to estate planning. This might include investments, debts owed by other parties involved, tax implications related specifically to inheritance laws regarding capital gains tax, etc.

Conclusion

Hopefully, you have now understood the importance of creating a trust for estate planning. Although not necessary, a trust can offer many benefits that can streamline the process of asset distribution after your demise. In addition, it allows you to control how your estate is distributed after death through careful planning beforehand.