Even when Washington residents finally accept the importance of timely estate planning to protect their loved one's future, they may become daunted by the complicated estate planning tools available for them to utilize. Between the different types of wills and trusts, drafting estate planning documents can become complicated and overwhelming. But, with a little clarity on what one hopes to achieve through estate planning, it may be possible to choose a correct tool.
The first thing one should think of is what is one's plan -- is the benefactor trying to protect specific assets or to avoid probate? Is the aim to minimize taxes or is it possible to give away substantial portions of assets and avoid being taxed on them? Choosing the right trust and therefore, the right estate planning tool can have serious consequences on both taxes and property protection.
There are two types of trusts, revocable and irrevocable. As the name suggests, an irrevocable trust is one in which the person creating the trust is giving up all rights and ownership of assets placed in the trust. This means that any income they generate does not go to the person creating the trust. In addition to this, in case of bankruptcy, the assets are protected and cannot be claimed.
As the name suggests, an irrevocable trust can be changed at any time or revoked entirely. This is because ownership of the assets and property does not pass until the person creating the trust passes away -- at that point, the trust becomes irrevocable.
Until then, the assets are under the ownership of the person who created it, which means they are taxed on the income generated by it and creditors can also claim the property. On the other hand, a revocable trust bypasses probate entirely, and the details of the asset distribution are protected from the public eye.
As mentioned above, there can be various reasons why someone might choose to create one trust over another. Whatever one does elect to do, it is important to ensure the legalities are completed so there are no disputes after the testator passes away. An experienced estate planning attorney may be able to help with that.