When planning for your future, and the future of your family, you should be informed of all your potential options and think carefully about what estate and family wealth preservation planning strategy works for you. The Tennessee estate planning lawyers at Martin Heller Potempa & Sheppard, PLLC help individuals in Nashville, Avondale, and surrounding areas of Tennessee craft various plans and instruments to protect their assets and protect their family’s interests. Establishing and knowing the difference between revocable and irrevocable trusts can not only help you throughout your life but also protect your loved ones if you become incapacitated or later when you pass away. MHPS, PLLC represents clients in need of revocable and irrevocable trusts throughout Williamson and Davidson Counties, and throughout all of Tennessee.
Choosing Between Revocable and Irrevocable Trusts
Trusts are created to hold assets, as opposed to having the assets kept in your own name. Trusts let you have access to property throughout your lifetime, and can also be used to distribute or hold the family wealth for a spouse, the children, or other named beneficiaries. Upon your death, the trust can help to avoid the probate of the estate and protect the family wealth against a new spouse, creditors, divorce, and avoid expensive estate taxes. Depending on the type of trust, you may be able to maintain control over the assets and make changes to the trust throughout the duration of your lifetime. Trusts allow a person to reduce estate tax liability, protect assets for the family, and avoid the costs of probate proceedings.
A revocable trust is created by the “grantor” and controlled by the “trustee”. In most cases, the same person is both the grantor and the trustee. A married couple may decide to have a joint revocable trust where they are both the grantors and the trustees. As the trust is revocable, the grantor may revise it as he or she desires in the future. One of the primary purposes of a revocable trust is to avoid costs and lengthy proceedings in probate court at the grantor’s death while keeping the assets for the family’s use in a protected trust.
Irrevocable trusts, as implied by their name, cannot be changed by a grantor. These trusts transfer ownership of assets permanently. Inter vivos irrevocable trusts are often used to transfer wealth among family members in a way that helps the family wealth stay protected from “outsiders,” like creditors and divorce. Irrevocable trusts are also used to minimize future estate tax burdens.
How to Establish a Revocable or Irrevocable Trust in Tennessee-Set Up a Trust
To establish a revocable or irrevocable trust, there are steps and elements the creator must understand.
The grantor must sign a written trust document that details the operation of the trust, appoints the trustee, and identifies the beneficiaries that will receive assets from the trust.
In the case of a revocable living trust, the grantor often acts as the grantor, trustee, and beneficiary, since he or she retains control and the benefit of the trust’s assets during the course of his or her life.
In contrast, an irrevocable trust appoints a separate trustee, or multiple trustees, to control the trust assets under stipulated guidelines contained in the trust agreement.
Some examples of irrevocable trusts include:
Irrevocable gift trust, that is used by the client to transfer family wealth for a spouse, children, and grandchildren, but keep the wealth protected;
Irrevocable life insurance trusts, that can transfer ownership of life insurance policies into a trust, removing them from a grantor’s taxable estate;
Qualified personal residence trusts, that can transfer a grantor’s residence into a trust, removing it from the grantor’s taxable estate;
Grantor retained annuity trusts, under which a grantor receives annual payments for a certain amount of time, and at the end of the specified term, the remaining assets pass to beneficiaries in an estate tax favorable situation; and
Charitable remainder trusts, that generally distribute a fixed percentage of trust assets to the trust beneficiary, which can include the grantor, the grantor’s spouse, and the grantor’s children, for a specific amount of time, after which the remaining assets are distributed to a charity. Charitable remainder trusts can create an income tax charitable gift deduction for the grantor when created, even though the charity does not receive any assets until many years later.
Deciding if a revocable or irrevocable trust is right for you involves careful consideration and review of your family situation, the makeup of your family wealth, desire for control of the family wealth, and who should ultimately receive the assets.
Many people think that it would make sense to make all trusts revocable to maintain control however, there are advantages and disadvantages to both forms. Consulting an experienced attorney who can help examine your options can be important in making sure your goals are met.
Discuss Your Wealth Preservation Goals with Our Tennessee Trust Attorneys
The wills and trusts attorneys at Martin Heller Potempa & Sheppard, PLLC can devise family wealth preservation strategies and revocable and irrevocable trusts for people throughout Williamson and Davidson Counties, and throughout all of Tennessee. If you need legal guidance in establishing a trust, be it revocable or irrevocable, or other family wealth and estate planning services, contact us online or call (615) 800-7096 to arrange a consultation.