Trusts are frequently used as part of an estate plan. Trusts use many benefits to the recipients of a decedent upon death such as avoidance of probate along with potentially avoiding payment of estate taxes. Benefits to the decedent consist of the capability to manage how the trust properties are used even after death.
A trust can be either an inter vivos trust or a testamentary trust. An inter vivos trust means the trust became active throughout the life time of the grantor while a testamentary trust does not trigger till the death of the grantor. In addition, a trust might be revocable or irreversible. An irrevocable trust offers appealing advantages for anyone worried with estate planning issues such as probate and estate taxes.
As suggested by the name, an irreversible trust can not be customized or ended except under certain particular situations. While a revocable trust can normally be modified or terminated at any time by the grantor, an irrevocable trust is not so simple to alter or end. State laws govern trusts; however, in many statesman irreversible trust can just be modified by agreement of all beneficiaries and the grantor, if still alive, or by a court. Because of the irrevocable nature of these trusts, properties put in the trust are considered to be trust property from the moment of production of the trust. This element of an irreversible trust supplies two important advantages– avoidance of probate and avoidance of estate taxes.
Only possessions that are owned by the decedent at the time of death are part of the decedent’s estate. In the event the decedent’s estate is needed to go through probate, all properties owned by the decedent are held up until the probate procedure is completed. Probate can take months, and even years sometimes, to finish. Assets put in a revocable or an irreversible trust can pass directly to the beneficiaries upon the death of the grantor, therefore avoiding probate. In addition, because the assets positioned in an irrevocable trust are no longer considered to be owned by the grantor, and are not part of the estate at the time of death, they are likewise exempt to estate taxes (unless the grantor is entitled to enjoy the earnings there from or usage of the possessions during life, and unless it was transferred within 3 years of death). The estate tax rate undergoes change, but is generally high, making an irrevocable trust a financially sound option as part of an estate plan.