The use of trusts allows you to transfer property to a trustee to hold, manage, and distribute your estate according to the specifications of the trust agreement. In addition, not only can a trust be created during an individual’s lifetime, but it can also be formed after an individual passes by means of a will. After the assets have been placed into a trust, they technically belong to the trust – not the trustee – dependent on rules and guidelines of the trust.
Essentially, a trust is an interest or right in a property, be it physical or financial. Trusts involve two types of parties. The trustee is the individual who holds the rights to the trust, while the beneficiary is the individual that will receive the benefits of the trust. There are many types of trusts, each of which, if properly drafted, provides significant tax and savings benefits. A good non-tax reason for having a trust is to manage property for minor and spendthrift beneficiaries. But to better understand trusts, let’s take a look at the different types.
There are basically two main categories of trusts: revocable trusts and irrevocable trusts. A revocable trust, also called living trust, has the ability to be changed, edited, modified, or completely revoked. After the maker of the trust has transferred a property title to a revocable trust, they have the ability to remove that property from the trust as long as they live. One of the key advantages of revocable trusts is circumventing the probate process, ensuring that the property is transferred in a timelier manner. However, revocable trusts do little to protect property from creditors. They do provide a tiny amount of protection since a creditor will be forced to petition a court to access the property, but there are better asset protection mechanisms.
Conversely, an irrevocable trust cannot be changed, modified, or revoked once it has been made. Even the maker of the trust won’t have legal access to the property held in the trust unless they are named a beneficiary. While this may sound undesirable at first, you need to realize that an irrevocable trust provides much more asset protection from creditors than a revocable trust.
To schedule a free initial consultation for a will, trust, or power of attorney in Lake or Cook County, please call the offices of Orlowsky & Wilson, Ltd. Today at 847-325-5559. The proper use of trusts can protect assets from creditors and ensure a brighter future for your loved ones.