Everybody in Lake Charles should have a will, which will ensure that their final wishes are respected and upheld. Wills are also important for distributing assets to heirs, but what if someone needs a different approach to meet his or her needs? Irrevocable trusts can round out the estate planning process, but not everyone understands how these handy tools work. Here are a few things to people should understand about irrevocable trusts.
A person who creates a trust is called a grantor, and in the case of an irrevocable trust, a grantor cannot make any changes. Some people are hesitant to create irrevocable trusts because of this feature, and indeed revocable trusts — trusts that the grantor can change or take back entirely — are much more common. However, having the ability to change a trust does not necessarily make it a superior option. For example, irrevocable trusts limit a person’s vulnerability to various legal judgments and creditors. This is because that person technically no longer owns any assets in the trust, which also means those assets are not included for estate tax purposes.
Irrevocable trusts are also useful for passing on life insurance benefits. Upon a person’s death, his or her life insurance benefits will pass into the trust, which a trustee will manage for the designated beneficiary or beneficiaries. The trustee can pay out the benefits as necessary or according to instructions in the trust. Not only is this a good idea for when a person might worry about how a beneficiary will use the money, but since the life insurance payout is technically the process of the trust it will not be subjected to estate taxes.
There are many other uses for irrevocable trusts, including for charity purposes. Still, some Lake Charles residents might feel hesitant to create trusts that they cannot change or revoke. While this is understandable, those fears are not always founded in reality. Speaking with a knowledgeable attorney might be helpful for an individual who wants to explore his or her estate planning options.