Saturday, June 23, 2012

Revocable and Irrevocable Trusts Can Be Effective Methods of Transferring Wealth, But Can Be Complicated and Cause Unintended Results by Austin Texas Trust Lawyer Jason S. Coomer

Revocable and Irrevocable Trusts by Austin Texas Trust Lawyer Jason S. Coomer

By creating a revocable or irrevocable trust, families can often protect their wealth from taxes, Medicaid and public disclosure, however, it is important to understand the type of trust that is being created and potential dangers of creating a trust prior to placing assets in a trust.

The main danger of a trusts is losing control of assets.  In creating a trust you are moving ownership of assets from yourself to a trust and are avoiding public disclosure of information.  Both of these actions can create the potential for a trustee or successor trustee to take control of assets.

The Revocable Living Trust Can Prevent Public Disclosure of Asset Information By Avoiding Probate or a Guardianship
 
 The Revocable Living Trust is an arrangement by which a person transfers ownership of their assets property into a trust throughout the course of their lifetime.  The person or persons transferring their assets are know as the Settlor is typically the Trustee and the Beneficiary of the trust during his/her life. This allows the Settlor to retain control of their assets as Trustee or to revoke the trust altogether and go back to managing the assets as an individual. The main benefit of a Revocable Living Trust is that it can avoid the need for probate or a guardianship that would require the public disclosure of assets.  However, this privacy and lack of disclosure can also create potential dangers including successor trustees trying to take the settlor's trust assets through incompetence challenges and successor trustees not distributing trust assets to beneficiaries.  Understanding the trust and giving copies of the trust document to all beneficiaries are typically important to protect from problems with successor trustees.

Irrevocable Trusts Can Help Protect Family Assets But Restrict A Person's Future Use of The Assets Put Into The Trust

Irrevocable Trusts including Medicaid Trusts, Irrevocable Life Insurance Trusts (ILITs) and other irrevocable trusts limit the control of the settlor over the assets put into the trust in order for the trust to accomplish a particular purpose. These trusts can be beneficial including allowing a person to qualify for Medicaid benefits without draining a family's assets or avoid estate tax implications, but the irrevocable trust can also result in a person losing control of their assets. 

It is vitally important that any person creating an irrevocable trust understand why the trust is being created and the future limitations that will be on their assets once the irrevocable trust is created.

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