Trusts are powerful tools that allow people to manage their assets and wealth strategically. A trust can enable you to hold assets on behalf of a beneficiary of your choice. Among the various types of trusts, revocable and irrevocable trusts stand out as two primary options.
Understanding the differences between these two types of trusts is essential for making informed estate planning decisions. Let’s explore the intricacies of revocable and irrevocable trusts, including their characteristics and advantages.
The primary difference
A revocable trust, which is what you’ll have if you set up a living trust, can be modified, altered, or even revoked during the grantor’s lifetime. The grantor (the individual who establishes the trust) retains full control over the trust and can make changes as they see fit. This level of flexibility is one of the key advantages of a revocable trust.
On the other hand, an irrevocable trust cannot be altered or revoked by the grantor once it has been created. Once the assets are transferred into the trust, the grantor relinquishes control, and the trust becomes a separate legal entity. All beneficiaries must agree upon any modifications to an irrevocable trust.
How to choose between the two
When the grantor dies, assets held in a revocable trust can avoid probate. By avoiding probate, the trust beneficiaries can receive their inheritance more swiftly and with greater privacy.
Additionally, a revocable trust can include provisions for managing the grantor’s assets if they become incapacitated. This aspect allows for a smooth transition of asset management without the need for court intervention.
Conversely, one of the most significant advantages of an irrevocable trust is its potential to shield assets from creditors and lawsuits. Since the assets are no longer considered the grantor’s property, they are less vulnerable to legal claims.
Revocable and irrevocable trusts are essential in estate planning, and the decision between the two depends on your preferences and goals. Having experienced legal guidance can help ensure that you make an informed decision.