A trust is a legal and fiduciary arrangement that lets a third party hold assets for the good of one or more beneficiaries. As a separate legal entity, assets put into the trust belong to it, not to the trustee.
The management of the trust’s assets should be handled in alignment with the trustor’s instructions. In the case of living trusts, the trustee only manages the trust and executes it in case the owner of the trust passes on. There are two basic types of living trusts.
Revocable living trusts
The revocable type of living trust can be modified, changed or even revoked by the trustor. They are created while the trustor is still alive, and that individual can withdraw the property from the trust at any time they please up until their death. Since trustors remain in control of their assets, they may have to pay estate taxes on them if their value exceeds the estate tax exemption at the time of their death.
Irrevocable living trusts
Unlike a revocable living trust, a trustor generally can’t modify the terms and conditions of an irrevocable trust except under very rare circumstances. Assets placed in an irrevocable trust reduce the trustor’s taxable estate because the trustee assumes legal ownership of any items placed it.
Which is the better option?
The best answer is – it all depends on the end result you are looking for. What works for you might not work for another. Of course, there are upsides and downsides to both. All in all, it is essential to have a concrete real estate administration plan whichever way you choose to go. It goes a long way in looking after your rights and those of your dependents after you are gone.