Trusts have been discussed as a potential solution for estate planning. They go beyond sheltering your assets from taxes – they can also help you distribute your assets in ways beyond a simple will. This is an important distinction because civil law jurisdictions such as Japan and France do not recognise trusts the same way that common law countries do for taxation purposes. But how a trust is structured can make all the difference when it comes to protecting your assets and your heirs’ futures. You can do both, but you also have to consider how much control you want to give up.
“One of the first decisions you’ll need to make regarding a trust is whether it will be revocable or irrevocable,” explains Richard Cayne of Meyer International. “That one extra syllable can impact your legal and tax liabilities in many varied ways.”
Revocable or irrevocable is mainly about control
On the face of it, the difference between the two is very simple. As their names suggest, a revocable trust allows for changes, and an irrevocable trust does not. The benefactor (you) can amend a revocable trust for as long as you’re alive or competent to do so. This means you can change beneficiaries, add or remove assets, and change other terms. If you set up an irrevocable trust, then you give up all rights to the assets and the terms once that trust is established.
If creating an irrevocable trust means losing control, then why would you want to consider the option?
Ceding control is not always a bad thing
While maintaining control over your assets within a trust may seem like a logical choice, you should ask yourself if it’s really necessary. Because with that control comes potential tax and legal issues. In most jurisdictions, you would still be considered the owner of those assets, so you may still have to pay any taxes related to them. And your heirs may have to pay inheritance tax once the trust is executed. Also, if you find yourself in a financial or legal bind, those assets could be seized or liquidated for repayment, damages, or compensation. An irrevocable trust shields your assets from these types of liabilities.
Get an expert to help you decide which type of trust
Beneath these rather simply explanations are also a vast network of legal and tax implications you must consider when establishing a trust. Especially if you have assets across more than one legal jurisdiction – and that includes states and provinces in the same country in some cases. And there are other considerations if your estate planning includes succession planning for business you or your family owns. To ensure you make the right decision that is most beneficial for you now and into the future, you should consult with a trusted advisor like Richard Cayne.
