Revocable Trust and Irrevocable Trust

What To Consider With Trust Options

When it comes to your estate plan, the trust provides solid options to protect your assets and ensure your beneficiaries receive those assets with limited difficulties.

Revocable Trust

Revocable trusts work best for people who want to adapt their estate plans in the face of new information and/or situations. Revocable trusts allow the creator of the trust, or the grantor, to change the terms and conditions of the trust whenever they want.

So if something happens to one of the beneficiaries named in the trust, the grantor can remove them from the trust. If the grantor decides to sell property listed among the trust’s assets, the grantor can do so without having to go through any complicated legal processes to enforce the change. The grantor even has the option to dissolve the trust and pursue other estate plan options if they desire.

Additionally, the grantor of a revocable trust can elect to name a trustee to actively manage the trust, or they can name themselves the trustee and do so themselves.

Irrevocable Trust

In contrast, irrevocable trusts seem to work best for grantors favoring a more hands-off approach to estate planning.

Once an irrevocable trust goes into effect, it’s almost impossible to alter the terms and conditions of that trust. It may help to think of irrevocable trusts like the final draft of an essay assignment; once it goes to the teacher, it’s out of your hands.

Irrevocable trusts operate in this manner to better protect the terms and assets listed in the trust. While the grantor does lose the ability to make changes and adapt to new circumstances, the grantor does gain the security of knowing those assets will be safely out of reach from any parties looking to claim them. In that sense, the assets operate similar to funds placed in a certificate of deposit, with beneficiaries unable to touch them until the maturation date.

Assets transferred into an irrevocable trust will also not be considered part of the grantor’s taxable estate, meaning estate taxes will not apply to those assets when the probate process goes into effect.

Which To Choose

When considering which trust type works best for your financial situations and estate plan goals, it’s important to remember not every situation can be best addressed with the same solution.

Different trusts work best for different people. While revocable trusts generally tend to be used more due to their inherent flexibility, irrevocable trusts should not be dismissed without due consideration.

Revocable trusts can be very attractive if you want to:

  • Avoid the probate process
  • Avoid ancillary probate in other states (this one applies if you happen to own property in more than one state
  • Maintain control of the assets and beneficiary distribution
  • Maximize control of your estate plan

But consider an irrevocable trust if you want to:

  • Avoid estate taxes (assets that go into the trust usually are not subject to estate tax requirements
  • Establish trust and then not worry about it.
  • Avoid problems from future creditors (you can’t touch them, so they can’t touch them, either).

Want to learn more? Contact the Nicole Pavlik Law Firm today.