Setting up a trust is a smart financial planning tool. It helps you protect your family's wealth and ensures that your assets are distributed to your heirs according to your wishes. When it comes to trusts, there are two types- irrevocable and revocable. Knowing the differences between the two can help you choose the right type of trust to suit your needs. In this blog post, we will take a closer look at these two options to help you understand the difference and make an informed decision.
Defining The Difference Between An Irrevocable and Revocable Trust
First, let's define irrevocable and revocable trusts. An irrevocable trust is a legal agreement that cannot be changed or revoked once it has been created. Once you fund the trust, it becomes the property of your beneficiaries, and you can no longer make changes to it.
On the other hand, a revocable trust is a legal document that can be altered at any time while you are still alive, and you remain in control of your assets.
Benefits of Creating An Irrevocable Trust
One of the primary benefits of creating an irrevocable trust is that it provides an excellent level of asset protection. With this type of trust, you are transferring ownership of your assets to the trust, so they are protected from potential lawsuits, creditors, and tax liens.
Moreover, you are reducing your taxable estate, which can help your beneficiaries avoid estate taxes. Additionally, it helps you protect your assets from long-term healthcare liabilities.
Benefits of Creating A Revocable Trust
In contrast, a revocable trust is more flexible in terms of making changes. This type of trust allows you to control your assets while you are still alive, but allows for easy changes to be made should your circumstances change down the line. It gives you the power to modify the trust documents, change beneficiaries, or add or remove assets. A revocable trust also lets you avoid probate, which can be a time-consuming and expensive process.
Key Differences Between Irrevocable and Revocable Trust
The key difference between the two trusts is the level of control. An irrevocable trust allows you to give your assets to your beneficiaries without the risk of them being taken from you by creditors or lawsuits. It also ensures that your assets won't be spent on medical expenses and long-term care, leaving a legacy to your future generations.
In contrast, a revocable trust enables you to have complete control over your assets during your lifetime.
Cost of Irrevocable and Revocable Trusts
In terms of costs, irrevocable trusts are typically more expensive than revocable trusts. The creation, maintenance, and funding of an irrevocable trust requires more work and effort to ensure your assets are correctly and legally transferred. Revocable trusts are generally easier and less expensive to set up and maintain, which makes them appealing to many.
Contact Our Legal Professionals at Upton & Hatfield, LLP To Help You Through The Estate Planning Process
In summary, knowing the differences between irrevocable and revocable trusts is essential for anyone considering estate planning. Which trust is best for you will depend on your specific situation, needs, and objectives.
An irrevocable trust is ideal if you want to protect your assets from potential lawsuits and creditors while maintaining control over them. In contrast, a revocable trust is more flexible and allows you to make changes as you desire. Moreover, with a revocable trust, you are reducing the chances of your family having to deal with probate court.