Revocable vs. Irrevocable Trusts: Understanding What They Are and Their Differences
When it comes to estate planning, there are several different approaches you can take to ensure that your final wishes are carried out. Living trusts are important documents to consider, and there are two types to choose from.
This article will describe the difference between a revocable and irrevocable trust so that you can make the best estate planning decision for your personal situation.
All About Revocable Trusts
Revocable trusts are trusts that can be changed or even cancelled. This is the major difference between a revocable and irrevocable trust. The trust earns income, which is distributed to the grantor, and then beneficiaries receive assets after the grantor’s death. People choose this type of trust as a way to avoid probate and also to maintain flexible control of their assets. It is common for individuals to plan ahead for their futures with this type of trust in case they become mentally incapacitated later in life or otherwise become incapable for managing their personal affairs.
A benefit of the revocable trust is that you can adjust the terms of it if you ever change your mind about where your assets should go or if you decide that the trust no longer serves your needs. A person is typically assigned to be at trustee of a revocable trust to manage assets after the trust is formed and money is put into it. Revocable trusts are private documents that are not part of the public record. However, a potentially negative aspect about this type of trust is that creditors can still reach these assets since they are under your full control. With this type of trust, state and federal estate taxes may also be charged upon your death.
All About Irrevocable Trusts
Irrevocable trusts are trusts that cannot be changed or cancelled without permission from the beneficiary. The grantor who creates an irrevocable trust cannot change the terms once the trust has been executed and assets are transferred into it. People choose this type of trust to protect their assets so that creditors or lawsuits cannot easily take them away after death. With the help of an estate law attorney, you may also be able to avoid estate taxes and capital gains taxes when you set up an irrevocable trust. This is also an effective way to facilitate charitable giving, as the creator of the trust can get a tax deduction for charitable income assets put into the irrevocable trust.
An irrevocable trust represents a final decision and are beneficial for tax avoidance purposes and asset protection. There are various types of irrevocable trusts that we can assist you with at Alatsas Law Firm, including AB trusts to benefit a surviving spouse, ABC trusts for married couples, life insurance trusts, and charitable estate planning trusts. It takes very rare and special circumstances for an irrevocable trust to ever be amended once it is signed.
Making a Decision About Revocable vs. Irrevocable Trusts
Whether you chose a revocable vs. irrevocable trust largely depends upon your tax situation, your comfort level with maintaining or giving up control, and the assets you want to protect. Our legal team is comprised of estate planning experts who can explain these types of trusts to you in more detail and help you create the trust that works best for your finances and future wishes.
For a free consultation about revocable vs. irrevocable trusts, please contact us by calling 718-233-2903 or filling out or online contact form. It’s never too early to start planning for the future of your estate or perhaps even revisit an old estate plan that might not be meeting your needs.