A trust is an estate planning tool that someone can set up to protect their assets for intended beneficiaries. Trusts are established while the estate owner is still alive and can determine how those assets reach their beneficiaries over time. During that time, the management of the trust is left to a third party, known as the trustee. The trustee will also be responsible for the trust and how its assets are distributed in the event of the death of the trust’s creator.
There are two main types of trusts, revocable trust and irrevocable trust. While similar, the two types of trusts have some key differences that need to be considered. The most notable of those differences is that revocable trusts can be modified over time, whereas irrevocable trusts cannot be altered without the full consent of all trust beneficiaries.
What Are the Advantages and Disadvantages of Revocable Trusts?
The main benefit of a revocable trust is that it allows the trust’s creator, the grantor, to modify the trust over time. The revocable trust (aka living trust), allows the grantor to remove beneficiaries, add all new ones, and change the terms in which the distribution of assets is set to occur. Revocable trusts are valuable for those who wish to protect their assets from probate courts, which can be costly and time-consuming.
The downsides of revocable trusts include the fact that assets within the trust are still subject to taxation, as the grantor is still considered the owner of the assets. Also, in situations like the death of the grantor, creditors and nursing homes can seize assets from a revocable trust to collect on debts.
What Are the Advantages and Disadvantages of Irrevocable Trusts?
The benefits of irrevocable trusts include the fact that assets within the trust cannot be seized by creditors and can potentially largely avoid taxes, including estate taxes upon the grantor’s death. Irrevocable trusts also avoid the process of probate court, granting everyone involved more privacy about the terms and assets within the trust.
However, irrevocable trusts cannot be modified once they are signed into action. The terms of the trust are set in stone unless the beneficiaries allow for changes to be made.
Which Estate Planning Tool is Right for You?
There are many options available to those who wish to draw up a strong estate plan, including several types of trusts, wills, and other legal powers. What estate planning option is right for you is largely dependent on your assets and investments, but also your risk of exposure to taxation.
To better determine whether a revocable living trust or an irrevocable trust is the right option for your estate, you are advised to speak with an attorney experienced in estate plans. Contact our law firm today at (720) 420-1039 to learn more about how we can help you with your situation.