A trust is an entity that holds assets for the benefit of beneficiaries pursuant to certain terms and managed by a trustee. Trusts can be constructed in various ways to specify exactly how and when assets pass to beneficiaries.
The main benefits of setting up a trust include protecting your wealth, privacy, and minimizing estate taxes and probate administration fees. There are many types of trusts but generally they fall into two categories – revocable or irrevocable.
A revocable trust allows the grantor to modify or revoke the trust which means that he or she retains access to the assets that fund the trust. An irrevocable trust is the opposite. The grantor cannot modify or revoke the trust and does not have access to the assets.
So why would you want an irrevocable trust?
An irrevocable trust is generally preferred over a revocable trust if your primary aim is to reduce the amount subject to estate taxes by effectively removing the trust assets from your estate. The grantor is also not taxed on the income generated by the trust assets and it may be protected against legal judgements against the grantor.
A revocable trust avoids probate and may be suitable for clients who are not concerned with estate tax issues and who have concerns about needing access to the funds in the trust during their lifetime. The revocable trust allows the grantor to serve as trustee up until such time as he or she becomes incapacitated at which time the successor trustee steps in. This can create a seamless transition for many types of managed assets.
For more information on setting up a trust in the Greater Baltimore area, please contact Stouffer Legal at 443-470-3599.