A will is the most common estate planning tool people use to bequeath their estate. However, there is more to estate planning than putting your last wishes on paper when passing over the estate to your loved ones.
First, a will comes with some uncertainties. What if it is successfully contested and revoked by the probate court? What if the beneficiaries waste away the family fortune? If you have such concerns, you may want to explore using an irrevocable trust when coming up with your estate plans.
How an irrevocable trust works
An irrevocable trust is a legal arrangement that allows a third party (the trustee) to hold assets on behalf of another (the beneficiaries).
As the person who created the trust, you get to dictate its terms and conditions. The conditions you create for the trust are permanent and cannot be easily changed. You can provide for your loved ones years later using an irrevocable trust.
What are the upsides of an irrevocable trust?
There are several advantages of an irrevocable trust over a will. The first is asset protection. The beneficiaries do not legally own assets in the trust. They are only beneficiaries of the trust. This offers protection from third parties such as debtors or in a divorce. They cannot be sold either.
An irrevocable trust also avoids the lengthy and costly probate process and taxes associated with wills. It is also a more private affair and offers more choice, given that you can choose from several different forms of trusts.
Understanding how an irrevocable trust works
The thing with irrevocable trusts is that the terms are permanent, both for the grantor and beneficiaries. Before you set up such a trust and transfer your property to it, you ought to first familiarize yourself with how they work and how you can incorporate them into your estate plans.