Anyone who has started the process of leaving their assets to beneficiaries faces a multitude of financial instruments available in Tennessee. Among those are revocable and living trusts. Here is what you need to know.
What are trusts?
Trusts are legal entities set up by an individual to manage their assets. They are estate planning tools that ensure your assets are used in a way that you believe is appropriate. Once you place assets inside a trust, a trustee manages them, determining how to invest and distribute them according to the trust guidelines. Trusts are commonly used for estate planning as opposed to wills and as a way to avoid going to probate when you pass away.
You may set up a trust in two ways: irrevocable or revocable. Irrevocable trusts cannot be modified after they are created without the permission of the beneficiaries. Revocable trusts are also known as living trusts. Thus, they are the same thing. You can modify these trusts in any way you choose after their creation.
Which type of trust is better?
As with all types of financial instruments used for future planning, what you choose depends on your needs, as both types have advantages and disadvantages. Some individuals include a combination of both types when setting up their estates, as well as other types of trusts to provide income for themselves in retirement.
Revocable trusts offer a high amount of flexibility as they allow you to change beneficiaries, designate new ones and stipulate how the assets should be distributed. However, they are not protected from creditors. Irrevocable trusts are protected from creditors. Their main advantage is that these assets are removed from your estate, so they are not taxable to your beneficiaries and are not available to any creditors upon your death.