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 discuss.
But you may need clarification about whether you need a revocable living or irrevocable trust. More and more, we are seeing people asking about irrevocable trusts, and so this article is designed to help you learn the difference and educate you, so that you can identify what trusts may be best 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 (RLT), during your lifetime, you will be the “grantor,” the “trustee,” and the “beneficiary.” So, nothing really changes when you retitle your assets in the name of your RLT, so long as you are living and have capacity (meaning you can make decisions for yourself).
With an RLT, once you become incapacitated (which is determined as per 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 take 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 still be the beneficiary. If you have died, then your family and friends that you’ve named as heirs would become the beneficiaries. At that point, based on the decisions you’ve made and set forth in the “trust agreement,” the trust may distribute outright to your beneficiaries or be held 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 & Legacy Strategy Session™ 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 — an agreement between a grantor and a trustee to hold the property for a beneficiary. Yet, 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 you have gifted them to the trustee, who is now responsible to hold the assets for the beneficiary.
If you create an irrevocable trust, it effectively means that you are giving the assets away now. You are removing assets from your name and protecting them from future lawsuits or future growth in your estate, while also removing them from your estate for estate tax purposes. We will recommend irrevocable trusts when we are preparing your estate for the potential that you may need long-term nursing care that you would like covered by Medicare without decimating your family’s inheritance. We also may recommend an irrevocable trust if you could be at significant risk of lawsuits, or if your estate that could be subject to Illinois’ estate tax but is below the federal exemption.
When you meet with us for a Family Wealth & Legacy Strategy 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 become 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. And we’ll integrate the proper insurance, financial, and tax professionals into your planning at the right time to ensure everything we create works for you and the people you love.
When you meet with us, we will learn about you, your family dynamics, your assets and your risks and liabilities, needs and desires to support you in the empowering decision-making process of creating an estate plan that works for you and the people you love. Contact us today to get started.
This article is a service of Family Wealth & Legacy Legal Solutions (FWLLS). We do not just draft documents; we ensure you make educated, informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth & Legacy Strategy Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth & Legacy Strategy Session and mention this article to find out how to get this $750 session at a significantly discounted rate, or even for free.