Not all estate planning tools are alike. What you choose to include in your Indiana estate plan might differ from your friend’s plan. This is, in fact, a good thing because it means that you customize your estate plan to fit your specific needs and goals, and so can your friend. There are no rules regarding what legal documents you must include or omit from an estate plan. Many people choose similar documents, however, such as revocable or irrevocable trusts.
Flexibility is the key word regarding the differences between revocable and irrevocable trusts. If you sign a revocable trust, it basically means you can modify it. You can only change an irrevocable trust, on the other hand, under certain specific circumstances and with the court’s approval.
Trusts are different because of tax implications, as well
Some people choose to transfer assets to an irrevocable trust because this type of trust typically doesn’t incur estate tax. On the contrary, because you retain ownership of the assets in a revocable trust, those assets may be subject to estate taxes. In addition to tax implications, many people use one or the other type of trust to maintain privacy because assets in trust are not a matter of public record.
Why use one type of trust over the other?
If you want to leave assets to a certain group of beneficiaries, such as your grandchildren, it might be best to use a revocable trust. If you are of sound mind, you can modify the document, commonly referred to as a “living” trust — because you can change it while you’re living.
Perhaps when you initiate a trust, you might only have one grandchild. Years later, you could have several and would naturally want to include them in the inheritance. With a revocable trust, you can easily make an update. As for an irrevocable trust, if your estate’s net worth is above the federal tax exemption limit, you might want to place assets into this type of trust.
Can you have both?
As mentioned earlier, there are no rules regarding which estate planning documents you must use. However, there are certain documents to help you achieve specific goals. You might have assets that you’d like to place in a living trust while, at the same time, you also have assets that would be better off in an irrevocable trust. The good news is that you can do both.
In addition to trusts, you might also wish to learn more about other estate planning documents, such as a last will and testament, advance directive and power of attorney. Remember that not having a will causes your estate to become intestate after you die, which means that the state will then determine how to distribute your assets. If you want a say in who your beneficiaries should be and which assets go to whom, a will is not a document you’d want to omit from your estate plan.