People often use the words will and trust interchangeably. Both documents are a set of legal instructions that dictate a person’s affairs; however, they are quite different in XXX.
A will is a legally binding document that states how a person would like their affairs and assets handled after they have passed on.
What is included in this document will vary by person, but items to consider are:
- a named executor of the will;
- guardians for minor children and their assets;
- a plan for the payment of debts and taxes;
- instructions on how pets should be cared for; and
- a list of assets the grantor would like to give to their beneficiaries.
A person can write a will themselves or hire an attorney with experience in estate planning. An attorney can provide sound legal guidance as well as ensure the grantor’s wishes are carried out after they pass on.
A living trust or ‘revocable living trust’ is a legal document that is formed for a specific purpose. Generally, this purpose is to ensure that ownership of assets will transfer to heirs privately and smoothly. Unlike a will, a living trust can be carried out while the grantor is still alive. This can be modified at any time, even after the document has been signed and legally filed.
A person typically creates a living trust to plan for the day they are mentally incapacitated. This could be a person who was recently diagnosed with Alzheimer’s and would like to make a plan for their assets and health before the disease takes complete control; or, as a safety measure in case they lose control of their mental facilities due to an accident or deteriorating health.
An irrevocable trust cannot be altered in any way once it has been signed and filed. The primary reason a person might choose an irrevocable trust is they may wish to move assets away from their estate to protect them from creditors or lawsuits.
Other reasons a person might choose an irrevocable trust are:
- To avoid capital gains taxes: when assets are moved to an irrevocable trust, they won’t incur any capital gains taxes. However, they may result in gift taxes.
- To avoid estate taxes: assets in a revocable trust remain in the grantor’s estate, qualifying for federal estate tax. When moved to an irrevocable trust, the assets are no longer in the estate and therefore cannot be taxed.
- Charitable gifts: if items are transferred to an irrevocable trust while the grantor is still alive, a charitable income tax deduction can be made. If those assets are transferred after the grantor’s death, the estate will receive a charitable tax deduction.
- To protect assets from a nursing home: if the grantor needs long-term care in a nursing home, funds put in a revocable trust to be used as a gift from the estate can be used to pay nursing home bills instead.
- If these same funds are put in an irrevocable trust, they cannot be used for bills even after the grantor is deceased.
Let Our Firm Plan Your Estate
Estate planning can get complicated, especially if you have many assets. Rech Law, P.C. is comprised of competent attorneys who can help you with your assets so you don’t have to worry about what becomes of them.
Call us today at (704) 659-0007 or contact us online for a legal consultation.