Relying on a will alone to protect your wealth after you are gone may leave some loose ends since you never know what lies ahead. For instance, imagine leaving your assets to your children through a will. If they incur significant debt, their inheritance could be on the line. Creditors can claim the inherited assets to settle debts, leaving your loved one with little to nothing.
Incorporating an irrevocable trust into your estate plans can remove the lack of assurance and uncertainties of bequeathing your estate to loved ones. Here is how an irrevocable trust helps protect assets.
Ownership and control of assets
An irrevocable trust is a separate legal entity from the owner or beneficiaries. Therefore, when you transfer ownership of your assets to the trust, they become trust assets that cannot be sold or transferred to third parties. The beneficiaries you appoint will enjoy trust proceeds while the assets are safe from creditors and legal liabilities that may affect them individually.
Fiduciary duty owed by the trustee
When you create a trust, you must appoint a trustee to manage it. It could be a qualified individual or institution. Either way, the trustee owes a fiduciary duty to always act in the best interests of the trust and its beneficiaries and manage the trust assets prudently, according to your instructions.
This legal obligation on the trustee adds an extra layer of protection, especially if you are concerned your heirs will mismanage or waste their inheritance. It also underscores the importance of choosing a capable trustee due to the sensitive nature of their role.
Minimizing estate taxes
Transferring assets to an irrevocable trust reduces the size of your taxable estate, which can save you a lot in death taxes. This ensures more of your wealth is passed on to your beneficiaries rather than going to the taxman.
Irrevocable trusts can complement your estate plans in other ways beyond the asset protection benefits. For instance, you can avoid the often lengthy and costly probate process with an irrevocable trust. Similarly, you can maintain greater control over asset distribution to achieve specific objectives.
Learning more about how irrevocable trusts work and seeking informed guidance can help you make the most of these estate planning tools and preserve your legacy.