Many people are under the impression that a last will and testament is all that is needed when it comes to estate planning. Unfortunately, however, a will by itself sometimes isn’t enough. Instead, most people require a comprehensive plan that consists of several estate planning documents. One key estate planning tool is the trust. The two most basic types of trusts are the revocable trust and irrevocable trust. In this article, we examine revocable and irrevocable trusts in Kentucky.
What is a Trust?
A trust is a legal arrangement that permits a trustee to hold assets on behalf of one or more beneficiaries. There are many ways to arrange a trust, and trusts can specify when and in what manner beneficiaries will receive assets. A major advantage of trusts is that they avoid the probate process, thereby allowing beneficiaries to obtain assets more quickly than they would through probate.
The creator of a revocable trust may amend its terms at any time. This includes the removal of beneficiaries, the designation of new ones, and the modification of trust terms. Thus, the primary advantage of a revocable trust is its flexibility. However, revocable trusts have their downsides. For example, since the creator of a revocable trust retains a level of control over it, the assets in the trust do not receive the type of protection from creditors that is provided by an irrevocable trust. So, if the creator of a revocable trust is sued, then the assets in the trust may be at risk. In addition, after the creator of a revocable trust passes away, the assets in the trust may be subject to estate taxes.
As opposed to a revocable trust, an irrevocable trust may only be amended under specific circumstances established by state law. In many states, changes to a revocable trust may only be made pursuant to a court order or with the consent of all beneficiaries. A primary advantage of irrevocable trusts is that trust assets are shielded from some types of taxes. Specifically, the assets in an irrevocable trust are not subject to estate tax, and beneficiaries are not required to pay taxes on income generated by the assets in the trust. However, irrevocable trusts are difficult to create, so legal assistance should be sought prior to attempting to form an irrevocable trust.
Contact a Shelby County Estate Planning Attorney
If you would like to create an estate plan in Kentucky, you need a knowledgeable estate planning attorney on your side. At Berkley Oliver PLLC, our estate planning lawyers are highly experienced in helping clients in Kentucky with their estate planning needs. Regardless of your unique situation, our experienced lawyers have the tools required to create an estate plan that is right for you. Please contact us to schedule a free consultation with a Shelby County estate planning attorney.