Trusts are an often recommended method of transferring assets after death. Trusts generally have many benefits, including the ability to avoid probate proceedings. There are different kinds of trusts that a person may establish, but they fall into two broad categories – revocable and irrevocable trusts.

With both a revocable and an irrevocable trust, the person setting up the trust, who is known as grantor or settlor, executes a legal document creating a trust and then transfers assets to the trust. How much access the settlor retains to the assets transferred to the trust determines how the trust is characterized.

In a revocable trust, once the trust is set up, the settlor still has the ability to terminate the trust or revoke it. That means that the settlor still has control over the assets in the trust because if the settlor wants to take the property from the trust, he or she can do so, and simply revoke the trust thereafter. Inter vivos trusts, or living trusts, are trusts created during the settlor’s life. These kinds of trusts can either be revocable or irrevocable.

Irrevocable trusts operate in the opposite way. Once the settlor creates an irrevocable trust and transfers assets to the trust, he cannot access the assets again or terminate the trust. The assets in the trust belong to the trust, and can be distributed to the beneficiaries of the trust according to the trust document. Trusts that are created through a person’s will are known as testamentary trusts, and are always irrevocable because the settlor is deceased by the time the trusts comes into existence.

In some cases, a settlor can create a revocable trust, with a provision in the trust documents to convert the trust into an irrevocable trust if the settlor becomes incapacitated. This can help keep the settlor’s wishes regarding the trust and its assets in place even when the settlor can no longer express those wishes.

A settlor can name him or herself as the beneficiary under either a revocable or an irrevocable trust. Trusts that are sometimes used to hold a settlor’s assets in order for the settlor to qualify for some government assistance, such as Medicaid, are usually required to be irrevocable in nature. If a settlor wishes to create a trust in order to avoid estate taxes, then the trust generally has to be an irrevocable trust. If the trust is created as a revocable trust, the settlor never quite loses control of the assets in the trust and those assets are still able to be considered a part of the person’s assets for tax purposes.

Contact an Experienced Estate Planning Attorney

There are many reasons to use a trust, including as part of your estate plan. If you need to use a trust, it is important to discuss the various trusts that may be most advantageous in your situation. To put together an estate plan that includes the use of trusts, and addresses your individual needs and wishes, contact Resnick Law, P.C., to consult the experienced estate planning attorneys in Bloomfield Hills and Detroit, Michigan.

(image courtesy fo Aidan Bartos)