What is the Difference Between a Revocable and Irrevocable Trust?
If you have been exploring estate planning, chances are that you have come across both revocable and irrevocable trusts. It is important to understand their differences so you know which one might be right for you. They both offer advantages and disadvantages. How you use them depends on your personal needs, and the needs of your family.
There are several options when it comes to trusts, including irrevocable trusts, to revocable (living) trusts. They serve a specific purpose, depending on your needs. However, there are certain things that all trusts have in common. For instance, you will have to name a trustee when establishing a trust, and that person will oversee the trust. In the case of an irrevocable trust, that means the trustee will be the one to ensure that it is followed upon your death, and it cannot be changed. In a living or revocable trust, however, you have more flexibility to manage assets and make changes up until the time of your death. Which type is right for you depends on your circumstances, and your reason for creating the trust.
What are common reasons for establishing a Trust?
A common reason for establishing a trust in an estate plan is to avoid going to court over an estate after a person dies. This is called probate, and a trust can bypass that process, making it much easier on families in the aftermath of a death, as well as saving them the money that might be involved with court cases. Irrevocable and revocable trusts can both be used to avoid the probate process. There are other ways to avoid probate, especially for smaller estates. It may be worth exploring those options before establishing a trust, depending on what your individual and familial needs are.
Trusts also provide privacy, which may be important to some people. The probate process is publicly available, so any information on your assets could be made public. In a trust, the only people who will have information on your property or assets are the trustee, and possible the beneficiaries.
So why would anyone not take the flexibility allowed with a revocable trust? First, there are a few limitations with a revocable trust. Because the owner of the trust maintains control over a living trust, it is not protected from creditors in the same way an irrevocable trust would be. If the owner of a revocable trust is sued, the trust assets can be ordered liquidated to satisfy a judgment. When the owner of a revocable trust dies, the assets held in trust are also subject to both state and federal estate taxes.
An irrevocable trust is set in stone, and cannot be changed once it’s instituted. One major reason to set up an irrevocable trust is for taxes. Irrevocable trusts remove the assets from the benefactor’s taxable estate, meaning they are not subject to estate tax upon death, and they also relieve the benefactor of tax responsibility for any income generated by the assets. These trusts can be set up with the help of a qualified attorney.
An irrevocable trust can also shield your assets from creditors upon your passing. In an irrevocable trust, you are essentially giving your assets away. Since you no longer own them, there is nothing for creditors to come after. They can also keep money safe from things like lawsuits or other legal haggling over your estate.
Contact The Mattar Firm
If you are considering an estate plan, an experienced estate planning attorney, like those at The Mattar Firm, can help you make the right decisions for your situation. Contact us today at 239-222-2222 or 844-444-4444.