Can you dissolve a trust after it has been created? The answer is yes and no, so we need to provide an explanation in this post.
Irrevocable Trusts
Irrevocable trusts cannot be revoked or dissolved, though there are limited exceptions. Why would you use this type of trust?
You may want to get assets out of your name for some particular reason, such as if your estate will be liable for federal estate tax. The current exclusion is $11.7 million, so you could transfer that amount tax-free and the estate tax would only be levied on the remainder.
If you convey assets into an irrevocable trust, they are not part of your taxable estate. There are also trusts that facilitate transfers at tax discounts.
Many people seek Medicaid eligibility late in their lives to qualify for long-term care benefits. Medicare does not cover custodial care provided by nursing homes and in-home caregivers.
If you convey assets into an irrevocable Medicaid trust, after five years (or less in some circumstances) they do not count against you if you apply for Medicaid. The principal is not accessible, but you can receive distributions income.
An irrevocable trust can also be used to protect your children’s inheritances if you are getting remarried. A qualified terminable interest property (QTIP) trust provides lifetime income for your surviving spouse, then your children inherit the property held by the trust.
These are just some of the purposes these trusts serve, but there are many others.
Revocable Living Trust
In addition to the trusts you cannot dissolve, there is the revocable living trust. You can rescind this trust at any time.
When you establish the trust, you will act as the the trustee, so you have total control of the assets every step of the way. Because of this, the trust does not accomplish any of the purposes described above.
However, there are major benefits that make a living trust a better choice than a simple will. Probate avoidance is one of them. A will must be admitted to probate, which is a time-consuming and expensive legal process. Assets transferred from a living trust are not subject to probate.
The estate administration process is also streamlined by the consolidation of assets–the trust is the owner of the estate property. A pour-over will directs any separately owned assets to the trust at the time of death.
Another advantage is the ability to plan for incapacity. You name a disability trustee who will succeed you if you become unable to handle your affairs effectively.
If you want to include guardrails for the beneficiaries, you could protect their assets from creditors and provide limited distributions over an extended period of time.
Take Action Today!
Today is the day to quit procrastinating if you have been without an estate plan. As you can see, there are many tools in the estate planning toolkit, and we can help you take the right steps to provide for your loved ones.
You can schedule a consultation with our Oklahoma City estate planning lawyers if you call us at 405-843-6100, or you can fill out our contact form if you would prefer to send us a message.
- What Happens to Assets When Creating a Trust? - February 27, 2017
- Are Living Wills Different from Regular Wills? - February 28, 2017
- Why Wills are Such a Common Estate Planning Tool? - March 1, 2017
