Creating your estate plan is a comprehensive process that requires you to think about everything from what you want to happen if you become incapacitated to what happens when you die.
One option that you have is to establish trusts to pass assets down to your intended beneficiaries. Understanding the differences between revocable and irrevocable trusts is crucial when planning your estate. Each type of trust has its features, benefits and limitations.
A revocable trust, also known as a living trust, is a trust that can be altered or revoked while you’re still living. This flexibility allows you to keep control over your assets and manage them however you see fit. Once you pass away, the trust becomes irrevocable since you aren’t there to make changes.
Once you establish an irrevocable trust, it can’t be altered, amended or revoked unless you have the permission of the beneficiaries or court. You relinquish control over the assets. Assets in an irrevocable trust are generally protected from creditors and legal judgments against you.
Irrevocable trusts can provide significant tax benefits. Assets placed in the trust are removed from the trustor’s estate, potentially reducing estate taxes. Income generated by the trust assets may also be taxed differently.
The choice between a revocable and an irrevocable trust depends on your circumstances, including estate planning goals, flexibility, tax considerations and asset protection. Working with someone familiar with your goals can provide you with the information you need to make decisions that can give you peace of mind.