Your trust: A cornerstone of your wealth preservation

Trusts are an important tool for preserving wealth by avoiding costly probate proceedings and estate taxes.

Colorado law allows for the creation of “living trusts.” A living trust is an agreement by which one person, a trustee, holds legal title to property for the benefit of another person, the beneficiary. The owner of the property, known as the trustmaker, can also serve as trustee.

Many assets, including real estate, antiques, stocks, and other business interests can be held in trust. Putting an asset in trust can keep it out of an estate, and thus avoid putting it through probate.

Living trust vs will

A living trust differs from a will by also directing the trustee how to distribute and manage assets during the trustmaker’s life. A living trust can also provide directions for how a trustee is to act in case the trustmaker is incapacitated. 

Denver estate planning attorney David W. Osterman has helped Colorado families create trusts during his 30+ years of practice. To determine if a trust is right for your estate plan, contact us online or at 303-759-3199 today.

Revocable Trusts

Generally, living trusts can be sorted into two categories: Revocable and irrevocable.

The terms of a revocable trust can be changed at any time, while the terms of an irrevocable trust cannot be changed. That might seem simple, but each type of trust has specific benefits and drawbacks when it comes to estate planning.

A revocable trust allows the trustmaker to retain control and possession over property placed in the trust. Transferring property into a revocable trust is not subject to the federal gift tax, and no other special income tax filings besides what the trustmaker typically files every year are necessary for upkeep of the trust.

Once the trustmaker dies, the trust becomes irrevocable and cannot be changed without a court order. This means that assets held in a revocable trust have limited protection from creditors while the trustmaker is alive, but that these assets may be subject to more protections once the trustmaker passes away and the trust becomes irrevocable. 

Irrevocable Trusts

Irrevocable trusts may seem like a less desirable option for wealth preservation because the trustmaker gives up all rights to control and possession of the assets, effectively making a gift to the trust.

That means that the initial transfer of property to an irrevocable trust is subject to the federal gift tax. However, the benefit is that the asset is then not subject to the estate tax when the trustmaker passes away.

This makes irrevocable trusts an ideal vehicle for wealth preservation for assets that are expected to appreciate in value. Careful estate planning may even be able to avoid subjecting an asset to both the gift tax and the estate tax.

One type of asset typically placed in irrevocable trusts is a life insurance policy. Life insurance policies can be purchased by the trust itself or transferred to the trust with minimal or no gift tax consequences. If a life insurance policy in the trustmaker’s name is held by a trust rather than the individual, it is not subject to estate taxes when the trustmaker dies.

Beyond revocable and irrevocable trusts, there are many other types of trusts that can be used to preserve assets in different types of ways, so it’s important to consult with an experienced estate planning attorney about which trust is right for your situation.

To learn more, contact Osterman Law online or at 303-759-3199 today