There is no difference between a trust and a living trust. “Trust” is used as an umbrella term that encompasses trusts such as living trusts, special needs trusts, and joint trusts, to name only a few. Trusts are considered separate entities that manage a person’s assets. The person who manages the assets of a trust is called a trustee, who manages the assets based on the terms of the trust document.
In estate planning, living trusts, also known as an intervivos trust, is the most common type of trust. You’ll want to learn about this type of trust to help you make the best decision in your estate planning.
A Living Trust: Our Springfield Trust Lawyer Explains the Basics
A living trust is called so because it is created during your lifetime and then, usually, transferred to designated beneficiaries after you pass. You can include anything and everything within your trust, but you must designate those assets as trust assets. These can include money, automobiles, stocks, intellectual property, or even real estate.
Benefits to putting property into a trust means that there are no extra taxes to pay, as the trust does not increase your tax rate, and the property in a trust does not go through probate, because a trust is considered to be a contract.
It is important to note that a trust that is created in a will is not considered to be a living trust. It is considered to be a testamentary trust, which is more commonly used as a tax planning tool or a means to manage assets for certain beneficiaries of a will.
Now that you have the basics of what a living trust is, we’ll move onto the differences between a revocable living trust and an irrevocable living trust.
Revocable v. Irrevocable Living Trusts
A revocable living trust is the most common type of living trust. Usually when people talk about a living trust, they mean a revocable living trust. A revocable trust is a document that sets out how your assets will be managed during the course of your lifetime and beyond and will also address how your assets will be managed in the event that you become incapacitated. The terms of a revocable trust can be changed or dissolved at any time, hence the name “revocable” trust.
An irrevocable trust, as you may have guessed, cannot be changed once it is created. The terms are set and inflexible once the irrevocable trust is signed and only in extremely rare circumstances can changes be made to an irrevocable trust. Many times, upon a revocable trust owners’ death or once a certain provision is met, the trust converts into an irrevocable trust.
Benefits of Trusts
The rigidity of an irrevocable trust may make you wonder why people would utilize them in the first place. One key reason is to shield assets from creditors and to avoid certain estate taxes. Because a revocable trust is so flexible and because the owner has so much control, the assets within the trust are considered to be the owners’ personal property and creditors may be able to get at the assets in a revocable trust. Similarly, assets in a revocable trust may be subject to state and federal estate taxes. Thus, an irrevocable trust may be better for people looking for enhanced asset protection.
Benefits to both types of trusts are that they avoid probate, meaning your assets will be distributed to your heirs more quickly, and you will save money on court fees. Both types of trusts also offer more privacy than a will, since a will becomes public during the probate process. Another huge benefit is having a plan of action for your assets and affairs without court intervention in case you ever become incapacity.
Contact a Springfield Trust Lawyer Today
Trusts can be complicated to create. Because these documents protect some of your most important assets, you want to make sure that they are done correctly. Seek appropriate legal guidance from a trusted Springfield trust lawyer at Parks & Jones. Contact our office today to discuss the specifics of your situation.