There are certain misconceptions that circulate with regard to estate planning. One of them is the belief that trusts are only useful for very wealthy people.
High net worth individuals do have a unique set of estate planning concerns. Asset transfers that exceed the amount of the federal estate tax exclusion can be taxed at a maximum rate of 40 percent. At the time of this writing late in 2015, the estate tax exclusion stands at $5.43 million, but it is going up to $5.45 million next year after an inflation adjustment is applied.
People who are exposed to the estate tax often use trusts that can ease their burden, so it is true that wealthy people use trusts. Certain types of trust can also provide asset protection for people who are concerned about legal actions.
The trusts that are used for asset protection and estate tax efficiency purposes are irrevocable trusts that you cannot revoke or dissolve. You surrender incidents of ownership when you convey assets into an irrevocable trust, so they would not be counted as part of your estate, and they would be out of play if you were to become the target of a legal action.
However, in addition to irrevocable trusts, there are also revocable trusts. A revocable living trust can be a very good estate planning tool for people who are not extraordinarily wealthy.
As you can see from the name of the trust, you can in fact revoke or rescind this type of trust, so you can change your mind and take back direct personal possession of the property that you conveyed into it if you ever choose to do so.
If you establish a revocable living trust, you can act as the trustee while you are alive and fully capable of making sound decisions, and you can also act as the beneficiary at first. In the trust declaration, you name successors to assume these roles after you pass away.
In this declaration, you can instruct the successor trustee with regard to the exact way that you want the assets to be distributed to the beneficiaries, so you can include spendthrift protections if you have concerns.
The distributions to the beneficiaries after your passing would take place outside the legal process of probate, and this is a major benefit. A last will would be admitted to probate, and this process is time-consuming and expensive.
You should certainly consider the possibility of establishing a living trust if you are a person of relatively ordinary means who wants to facilitate efficient asset transfers to your loved ones.
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