Do you know what will happen to your assets after you pass?
If you’re like most people, you think of a will as the way to ensure your wishes are carried out with the dispersal of your assets. But wills aren’t the only documents that can do this. Trusts are another way to handle assets after death and they can be used with a will to best accommodate your needs.
Trusts are fiduciary arrangements that allow a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts are created when the holder is still alive and the property in the trust can be passed on after death to the dedicated beneficiaries. Trusts offer the benefit of skipping probate, saving your beneficiaries time and money. Assets held by trusts and wills are taxed differently, and the type of trust you choose can prevent your assets from being attacked by creditors and taxes.
While there are many different types of trusts, they fit into two categories: revocable and irrevocable.
We’ll look at both types of trusts in detail and discuss generally the advantages and disadvantages of each.
Revocable Trusts
Revocable trusts are known as living trusts. They start as soon as they are created, helping to manage your assets while you’re still alive. The living trust earns its name because of the flexibility it offers to its creator to change or even revoke the trust as they see fit. It allows the plan for your assets to change as your life changes.
With a revocable trust, you can make changes to its:
- Beneficiaries
- Stipulations
- Assets
- Trustees (overseers)
- More
The ability to change a revocable trust is its greatest advantage. After your death, it can be used to make decisions using trustees or stipulations. If a beneficiary is underage or unreliable with money, their inheritance can be held in the trust and either given in small increments or paid out when they come of age.
Irrevocable Trusts
Irrevocable trusts, as their name suggests, cannot be revoked or altered. As soon as the irrevocable trust is created, it is set in stone. To change or terminate an irrevocable trust in Virginia, all of the trust’s beneficiaries have to agree to the change or termination, and it needs to be approved by the court. Adding terms to the trust to allow for changes does make this process a little easier.
While revocable trusts offer the advantage of flexibility, irrevocable trusts offer monetary and protective advantages. Irrevocable trusts do not face estate taxes upon death, and beneficiaries are relieved of the tax responsibility from the income generated by the trust’s assets. Irrevocable trusts also offer protection from creditors and lawsuit judgements against a beneficiary.
An irrevocable trust is harder to set up than a revocable trust due to its restrictions and requires the help of a qualified attorney.
If you or someone you know is looking to explore different estate planning options, contact Jason Smolen jdsmolen@smolenplevy.com or Daniel Ruttenberg dhruttenberg@smolenplevy.com for more information. Their expertise in estate planning can help guide you through the difficult decisions and processes you face.
About the Authors
Jason Smolen
Jason Smolen is a founding principal of SmolenPlevy. Smolen’s knowledge of complex estate and business issues has drawn the attention of ABC News, USA Today, E! Online, Realty Times and the Bank of America Small Business Online Community. Mr. Smolen is a graduate of the City College of the City University of New York and the George Mason University School of Law. Smolen also serves as a board member of a local citizens association and recently co-authored an article titled Why You Should Think About Spousal Limited Access Trusts (SLATS).
Daniel H. Ruttenberg
Daniel H. Ruttenberg, JD, CPA, LLM is a principal with the firm. Mr. Ruttenberg received his Bachelor of Science degree with a double major in Accounting and Finance from the University of Maryland. He earned his Juris Doctor with Honors from George Mason University School of Law and his Master of Laws in Taxation with Distinction from Georgetown University Law Center. Mr. Ruttenberg also served as the Director of the Fairfax Bar Association (FBA) for seven years. During this period, he was also elected president – the youngest in FBA history and served as a member of the Board of Directors for the Fairfax Law Foundation.
