The Difference Between Revocable and Irrevocable Trusts
When planning for your death and your beneficiaries’ futures, you need to know the difference between revocable and irrevocable trusts. In fact, it is crucial that you know the reasons and benefits of why you would have one document over the other. However, one type of trust does not work for everyone. Depending on your needs, your estate planning attorney can help determine which trust is best for your situation.
Revocable Living Trusts
A revocable living trust is a trust that can be changed at any given time. The reason for this is that many people change their minds about who they want as their trustee or trust beneficiary. This type of trust allows for changes to terms and provisions in the trust, which can be changed easily through a trust amendment or trust restatement. Additionally, this trust can even be revoked at any time.
Not only is flexibility a benefit of having a revocable living trust, but the following reasons are also benefits:
• Avoids probate
• Allows you to appoint a trustee if you become unable to care for yourself or make decisions
• Provides privacy of your trust agreement so that it does not become public record
The downside of a revocable living trust is that all assets funded into the trust are still open to both state and federal estate taxes and state inheritance taxes. Whereas, an irrevocable living trust allows a person to reduce their income taxes on assets and reduce taxes on inheritances.
Irrevocable Living Trusts
Just like a revocable living trust, an irrevocable living trust allows assets funded in the trust to avoid probate. The biggest benefits of having an irrevocable living trust include:
• The assets in the irrevocable trust help offset some of the estate taxes because the assets in the trust are not counted as part of the estate, allowing one to reduce tax liabilities
• The trusts’ assets cannot be reached by a creditor, providing for asset protection
• The beneficiaries do not pay inheritance taxes
The big difference between the two is that once an irrevocable living trust is made and assets have been transferred to it, you cannot make any changes to it at a later date. Irrevocable trusts are, in fact, permanent.
If you’d like to learn more about this or any area of estate planning, please contact the Law Offices of Shane Smith at (678) 788-7144 or firstname.lastname@example.org to arrange your “estate planning for life” consultation.