There are many basic tools of estate planning, which become more effective when they are coordinated and complement each other. For asset protection and tax planning, aligning strategies is critical for success, says a recent article from Kiplinger, “Revocable Trusts: The Most Common Trusts in Estate Planning.” The benefits of revocable trusts include letting the grantor—the person making the trust—have control of assets.
As the name implies, revocable trusts are more flexible than irrevocable trusts. The grantor of a revocable trust may change the terms of the trust whenever they wish, transfer property in and out of the trust, and change beneficiaries at will.
A revocable trust has many benefits. One benefit is that assets placed in a trust are not subject to probate when the estate is settled, keeping the terms of the trust and the nature of the assets private. A revocable trust allows for a step-up in basis, which can reduce or, in some cases, eliminate capital gains taxes.
The language of the trust provides instructions for managing and disposing of the assets upon the grantor’s death. A revocable trust can also be designed to protect assets for beneficiaries, set certain conditions for asset distribution, or require the funds to be used for specific costs, like education or home purchase.
There are some limitations to be aware of, which should be discussed with your estate planning attorney. If the goal is to protect assets for the grantor, an irrevocable trust is better. For example, if the grantor was involved in litigation and lost, a revocable trust’s assets could be recovered as part of the judgment. This is because the grantor still has control of the assets.
If the assets were in an irrevocable trust, the grantor would have no access to them, which adds a layer of protection.
The grantor needs to consider trading control of and access to assets for protection from court judgments and creditors.
You and your estate planning attorney should discuss which trust is better for your situation. A revocable trust is an excellent tool for estate planning, but an irrevocable trust provides more protection and can potentially shield assets from taxes.
Many people of modest means find that a revocable trust serves their interests well. In contrast, people with higher estate values find a combination of revocable and irrevocable trusts allows them to structure trusts to meet their goals.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: Kiplinger (April 4, 2024) “Revocable Trusts: The Most Common Trusts in Estate Planning”
