Is a trust part of your estate plan? A trust is a versatile legal entity and serves several purposes. They legally protect and manage property or assets for your benefit and that of your loved ones. They can also ensure your assets are distributed according to your wishes. Trusts can impact inheritance taxes, but it is best to clarify this with an estate planning lawyer in NJ. In this article, our team will discuss the pros and cons of the trusts most commonly used.
Pros and Cons of Revocable Trust
A revocable trust, or living trust, is one of the most common types of trusts.
Pros: As the owner of the revocable trust, you can change its terms at any time. You can modify how the assets in the trust should be managed and change beneficiaries. A living trust helps your estate avoid the time and costs associated with the probate process.
Cons: The assets in the trust are not protected from creditors. Which means if you are sued, the trust assets can be liquidated to satisfy a judgement.
Pros and Cons of Irrevocable Trust
An irrevocable trust is a good option when you want to limit your tax exposure or work in a profession where you are at risk of lawsuits.
Pros: Benefactors of the irrevocable trust have no tax responsibility for income generated by its assets. The trust is protected from creditors and legal judgement.
Cons: Once the trust agreement is signed, it can never be changed. Except in extremely rare circumstances, and you have no say in the management of the trust. If your estate goes through a legal proceeding, the documentation of the trust’s creation may be recorded.
Pros and Cons of Joint Trust
A joint trust is a revocable trust and a good option for spouses who hold assets jointly. Both parties are joint trustees, and when one spouse is incapacitated, the other becomes sole trustee.
Pros: When one spouse passes away, the estate is easier to manage with a joint trust as assets don’t need to be transferred. Funding is simple and can be maintained during the couple’s lifetime.
Cons: It is not the best option if you have been married for a short time or keep separate assets. This type of trust also offers limited asset protection against creditors and judgements.
Pros and Cons of A-B Trust
An A-B trust is an irrevocable trust generally created by married couples for estate tax purposes and can be complicated. It is not often used, but if you want an A-B trust, it is best to seek the help of a reputable estate planning attorney.
Pros: Since the A-B trust splits into two entities when one spouse dies, the surviving spouse has limited influence over the deceased spouse’s trust (bypass trust).
Cons: The Internal Revenue Service (IRS) limits the surviving spouse’s use of the bypass (B) trust.