You may take pause before creating a trust because you are concerned about losing control of the assets that you convey into it. It is important to understand that there are different types of trusts. There are revocable trusts, and there are irrevocable trusts.
When you create an irrevocable trust, generally speaking you are surrendering personal control of the assets. These trusts are used by those who want to gain tax or asset protection. Because you do relinquish incidents of ownership, assets that have been conveyed into this type of trust would not be looked upon as part of your taxable estate.
Revocable Living Trusts
Things are different with a revocable living trust. When you create a revocable living trust, you are referred to as the grantor. As the grantor of the trust, you may act as the trustee and the beneficiary while you are living. You name successors to assume these roles after you die.
Since you can act as both the trustee and the beneficiary, you retain complete control of the assets that have been conveyed into the trust. In addition to this, the trust is revocable so you can rescind or revoke the trust at any time. You can also change the terms.
These trusts are very useful for those who want to facilitate asset transfers outside of the process of probate. If you use a last will to state your final wishes, the executor must admit the will to probate.
During probate the court will supervise the administration of the estate. The heirs to the estate will not receive their inheritances until after the court has closed the estate. Probate can be a time-consuming process. A relatively simple and straightforward case can be held up in probate for somewhere in the vicinity of a year.
Nobody wants to wait for an inheritance, but this time lag can actually create hardships for some families.
Probate expenses can be considerable, and this is another one of the pitfalls. The executor is entitled to payment for his or her time and effort, and the court charges a filing fee. Because probate is a legal process the executor will often retain a probate lawyer. Final taxes must be paid while the estate is going through probate, so a tax accountant may be necessary as well. There can also be appraisal and liquidation expenses.
When you use a revocable living trust rather than a last will, your beneficiaries will receive their inheritances in a direct and timely manner. The trustee will follow the instructions that you leave behind in the trust agreement, and the monetary distributions that are received by the beneficiaries will not be subject to the probate process.