Estate planning typically includes executing a trust, which serves as a separate legal entity to hold properties and assets for its beneficiaries. As reported by Kiplinger’s Personal Finance, in addition to real estate, trusts may include financial accounts, cars and insurance policies.
The type of trust created generally determines whether an executor may modify its contents before an illness, incapacitation or death. An irrevocable trust cannot change without the approval of its trustee and beneficiaries. Benefits of an irrevocable trust include protecting assets from creditors and their exclusion from a taxable estate upon death.
The choice of a living trust may depend on the need to make changes
Individuals with fluctuating or volatile assets may wish to consider a living trust, which they can revoke up until death. They may then serve as executors of their living trusts or they may name a trustee to oversee its income and distributions.
Written instructions may change as often as the creator of the trust wishes to make revisions or updates. Revising the terms, for example, may coincide with receiving lump-sum cash payments or acquiring new property. A living trust, however, may only contain after-tax assets.
Probate may provide cause to consider a trust
After death and during probate, a will generally requires settling the deceased’s debts and taxes before transferring any assets to the heirs. As noted by MSN Money, a trust may circumvent probate and begin providing for its beneficiaries immediately after its creator dies.
To create a trust, an individual generally provides a detailed listing of his or her assets and transfers them to the trust. A set of written instructions dictates how a chosen trustee may buy, sell or distribute funds to the trust’s beneficiaries. The trustee manages the assets and sends income to the trust’s beneficiaries as specified in its instructions.