A non-testamentary trust is a legal document that is effective during your lifetime, during any period of disability, and after your death. There are many types of specialized trusts. Two common types of trusts are the revocable and irrevocable trusts. Both types of trusts:
- Offer lifetime benefits;
- Provide for the distribution of your assets;
- Avoid probate if fully funded;
- Provide for a successor trustee upon your death or incapacity;
- Allow for the management of your property, even if you’re incapacitated;
- Can address appointing disability guardians for minor children;
- Often include protective trusts for beneficiaries and tax planning;
- Cost more than a simple will at the outset, but much less after your death.
Revocable trusts are also known as “living trusts” because you can alter, change, modify, or revoke them if your circumstances or goals change. You stay in control of your trust. You can transfer property into a trust and take it out, serve as the trustee, and be the beneficiary. You select successor trustees to manage the trust if you become incapacitated and when you die. Your trust assets avoid probate. This makes it difficult for creditors to access assets since they must petition a court for an order to enable the creditor to get to the assets held in the trust. Assets in your revocable trust remain in your estate for estate tax purposes but do not go through the public probate process at your death.
As the name states, you, as the creator of an irrevocable trust, cannot later revoke it. There are some powers that you can retain if the document allows it, such as the power to make investment decisions or change beneficiaries. The assets of an irrevocable trust have increased asset protection, meaning they are kept out of the reach of your creditors. Taxes are often reduced because, in most cases, irrevocable trust assets are no longer part of your estate. Trust protectors can, however, step in and modify your trust in certain circumstances. Many people are uncomfortable giving up control over their assets, and with the need for federal estate tax planning necessary only for estates over $12.06 million per person in 2022, the popularity of irrevocable trusts is waning.