Irrevocable Trust Vs. Revocable Trust – What is the Difference?
There are two types of living trusts: Revocable trusts and irrevocable trusts.
A revocable trust, by its nature, offers a lot of flexibility. The trustor (the person who creates the trust) keeps control of the assets, and has the ability to revoke or amend the trust at any time during his or her lifetime and while they have legal capacity. The trustor still owns and controls the property in the trust and when the trustor passes away, the assets are easily transferred to the intended beneficiaries without the need for probate. Learn more about revocable trusts.
Irrevocable trusts are less commonly used than revocable living trusts, but have some advantages over revocable living trusts—mainly tax benefits and protection from creditors. However, by its design, an irrevocable trust cannot be terminated, amended, or modified at any time. It is irrevocable in every sense of the word. Once the trustor transfers assets into an irrevocable trust, they give up control of those assets for their lifetime. Learn more about irrevocable trusts.
Since an irrevocable trust requires you permanently give assets away during your lifetime, those assets—whether real estate, money, investments, or other property—may be protected from the trustor’s creditors. There may also be significant tax advantages (but talk to a CPA before transferring your assets into an irrevocable trust). There can be some disadvantages to the irrevocable trust, such as taxable income derived from assets in the irrevocable trust is payable by the trust, though typically at a higher rate than individuals pay. However, properly created, funded and managed irrevocable trusts can offer asset protection from creditors and Court judgments, as well as allow for tax advantages.
No one likes to think about their death or the death of a loved one, but with proper estate planning you can ensure your family and property are taken care of according to your wishes. By preparing a trust, whether revocable or irrevocable, you ensure your estate is distributed according to your wishes and you avoid the hassles and costs associated with probate.
Talk to an experienced estate planning attorney today and find out more about creating a revocable living trust or an irrevocable trust and determining which one is right for you. Attorney Eric A. Rudolph, Esq. with The Law Offices of Eric A. Rudolph can help you plan or update your estate plan. Contact us today for an estate planning consultation.