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Choose the right type of trust

As a Florida resident who is thinking about establishing a trust, you may already know that both revocable and irrevocable trusts exist. Although their names give some clues about the nature of these trusts, they offer significantly different benefits, and they are also subject to radically different tax structures. Today, we will discuss how to choose the right kind of trust for your comprehensive estate plan.

Revocable trusts, also known as living trusts, can be changed by the owner at will. That is, as the trust's creator, you can change or modify any conditions of the trust without penalty. You can remove and add beneficiaries, change the assets that are held within the trust, or even revoke the entire agreement and start over again. Revocable trusts are extraordinarily flexible, but they do have a downside: Revocable trusts do not enjoy as much protection as their irrevocable counterparts. That means that the contents of your revocable trust will be considered as part of your overall estate when your estate tax is calculated after your death. In addition, creditors can access assets that are held in these trusts during bankruptcy and other financial woes.

This type of trust is best used to plan for the possibility of mental incapacitation, because the trust can be managed by a disability trustee chosen by the owner of the trust; otherwise, the trust would just be managed by a court-appointed stranger. Next, revocable trusts are helpful during probate, and they also help protect the privacy of your beneficiaries by keeping information out of the public courts.

Irrevocable trusts, on the other hand, cannot be easily changed. This drawback is offset by the fact that these trusts are exempted from most estate taxes. The trust owns the assets instead of the individual. Irrevocable trusts are generally used to promote asset protection when the tax man comes.

Florida residents who are considering including a trust in their estate plan should educate themselves about the consequences and benefits of various types of trusts. Choosing the right type of trust can also be facilitated through a qualified probate attorney, who can help identify the correct option for individual and family needs.

Source: www.theyeshivaworld.com, "Revocable vs. irrevocable trusts; to change or not to change" No author given, Oct. 08, 2013

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