You’ve probably heard you need a trust to keep your family out of court and maybe out of conflict in the event of your death or incapacity. And, if you haven’t, you are hearing it now. If you own any “probatable” assets in your name at the time of your incapacity or death, your family must go to court to access them. If you aren’t sure if your assets are “probatable” contact us to schedule a Family Wealth Planning Session.
But, you may need clarification about whether you need a revocable living trust or an irrevocable trust. More and more, we are seeing people come our way asking for an irrevocable trust. So, this article is designed to help you learn the difference in order to determine the right kind of trust for you and your loved ones.
What Is A Trust?
A trust is an agreement between the grantor of the trust (that’s you) with a trustee (someone named by you) to hold title to assets for the benefit of your beneficiaries (whoever you name). When we break it down in its simplest form, it’s that straightforward. It’s an agreement.
Now, the terms of that “agreement,” called a “trust agreement,” can vary significantly, and that’s where we come in as we’ll work with you to clarify the terms that you want between yourself and the trustee for the benefit of the people you name as beneficiaries.
With a revocable living trust, during your lifetime, you will be the “grantor,” the “trustee,” and the “beneficiary.” So, for all intents and purposes under the law, nothing really happens when you retitle your assets in the name of your revocable living trust, so long as you are living and have capacity (meaning you can make decisions for yourself).
With a revocable living trust, once you become incapacitated (which is determined according to the instructions in the trust document) or in the event of your death, the trust becomes irrevocable, and the person or persons you’ve named as successor trustee steps in to control the assets held in the name of the trust for the benefit of the beneficiaries named in the trust. If you are still living but incapacitated, you would be the beneficiary still. If you have died, then your named heirs would be the beneficiaries. At that point, the trust may distribute assets outright to your beneficiaries or hold them in continuing trust -- protected from creditors, future divorces, future lawsuits, and even estate taxes (if the trust is drafted properly) -- if your trust terms provide for continuing protection. You could indicate in the trust agreement that you want your beneficiaries to “control the trust” but that you want the trustee to continue to hold title to the assets, thereby protecting the assets, while giving the beneficiaries nearly full control and use of the assets. This is a bit tricky, so don’t try it at home without support. But, if you want to provide this kind of benefit and protection to the people you love, be sure to talk with us about building a Lifetime Asset Protection Trust into your plan. It’s highly worth it if you’ll pass on anything more than what your children will immediately spend upon your death.
We support you in making these decisions in our Family Wealth Planning Session process before ever drafting a single legal document for you. But before we talk about that, let’s clarify what an irrevocable trust is and where it might fit into your plan.
An irrevocable trust is the same as a revocable trust in the sense that it is an agreement between a grantor and a trustee to hold the property for a beneficiary. Still, if the trust agreement is irrevocable, or once it becomes irrevocable, it cannot be changed. There are some exceptions to this, but for the most part, that is the case. If you put your assets into an irrevocable trust, you cannot then take them out of the trust and return them to yourself because the gift to the trustee to hold the assets for the beneficiary is irrevocable. An irrevocable trust can remove assets from your name and protect them from future lawsuits or future growth in your estate, which removes them from your estate for estate tax purposes.
When you meet with us for a Family Wealth Planning Session, we’ll look at your assets, family dynamics, personal desires, and how the law will apply to all of it. Then, together, we will decide on the right plan for you -- whether to include a trust or not, whether that trust should be revocable or not, and if it is revocable, when it should be irrevocable, and how long it should last for the people you love.
Never choose a type of trust without working with a lawyer who understands you, your family, your assets, and your goals. Never use a life insurance professional or financial advisor to choose the type of trust or draft your trust for you. Too many variables could leave your family with a big mess. We’ll guide you to make the right decisions during life and be there for your family when you can’t be.
When you meet with us, we will learn about you, your family dynamics, your assets, and your desires in order to support you in the empowering decision-making process of creating an estate plan that works for you and the people you love.
This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That is why we offer a Family Wealth Planning Session, during which you will get more financially organized than you have ever been before and make all the best choices for the people you love. You can begin by contacting our office today to schedule a planning session and mention this article to find out how to get this $750 session at no charge.
Disclaimer: All information on this website is for informational purposes only and is not legal advice. You should contact an attorney trained to work with families on estate planning matters regarding your specific situation. Use of and access to this website or any of the email links contained within the site do not create an attorney-client relationship between the Law Office of Keoni Souza, LLC, and any users or any other party.