exas residents may be aware that creating a trust is one way to ensure asset protection. However, when one gets down to sorting out the details in creating a trust, it may be easy to get daunted by the different types of trusts and the tax and legal consequences of each. Understanding the basic types of trusts can go a long way in comprehensive estate planning.
Trusts can be either revocable or irrevocable. As the name suggests, a revocable trust is one that can be changed at any time. Also known as a living trust or an inter vivos trust, it is an entity that legally owns an individual's assets. The grantor, the person making the trust, is also the trustee in this case, meaning that this person controls and manages the assets that were placed in the trust. A revocable trust offers flexibility, as the grantor can change, modify or even terminate the agreement whenever they want to. On the other hand, this flexibility means that it offers no credit protection. If the grantor is sued, the assets will be considered the grantor's. In addition to this, they are also considered the grantors for the purposes of Medicaid planning and for the purposes of estate taxes.
An irrevocable trust, on the other hand, is one that cannot be changed after it has been signed. In addition to this, a revocable trust can become irrevocable after the grantor dies. Through various means, irrevocable trusts can remove the value of the assets placed in it from the grantor's property, which means they can no longer be taxed. They become outside of the reach of the creditors, but can still provide financial support to the beneficiaries should the need arise.
Everyone's financial situation is different, which means that there is no one-size-fits-all policy when it comes to estate planning. Depending on their circumstances, some people may find they prefer a revocable trust over an irrevocable one, especially if they want to avoid probate and protect their beneficiary's privacy. An experienced attorney can guide Texas residents through estate planning goals and instruments to ensure that their heirs get what they deserve.