While many people rely solely on a will for their estate plan, some people find that establishing a trust is a better choice for their estate. As Forbes notes, trusts can be used alone or alongside a will to help your estate avoid probate, plan for taxes and achieve other financial goals. These trusts can come in two different forms—revocable and irrevocable—and exploring the benefits of both is key to creating an estate plan that suits your needs and goals.
What are irrevocable and revocable trusts?
As the name implies, an irrevocable trust cannot be changed or terminated under most circumstances. Anyone placing their property in an irrevocable trust transfers ownership to that trust, and the terms cannot be changed by the grantor once the trust has been executed.
A revocable trust, on the other hand, can be changed by the grantor as needed. They can alter the terms, adjust the listed beneficiaries or cancel the trust altogether.
What are the advantages of an irrevocable trust?
One reason to choose an irrevocable trust is that transferring ownership of your assets can protect them. While creditors or lawsuits can impact the funds or assets in a revocable trust, an irrevocable trust transfers ownership of those assets to the trust so long as the transfers are not fraudulent. This protects them because they are not legally owned by the grantor of the trust. It may also prevent your assets from use in paying medical bills if you need long-term care in the future.
Another benefit of an irrevocable trust is that transferring ownership removes these assets from your estate. This can decrease the burden of estate taxes on your family when you pass away.
What are the advantages of a revocable trust?
One of the clearest advantages of a revocable trust is that it allows you to maintain control of your assets. Not only can you alter or revoke the trust as needed, by maintaining ownership of your assets you can use them if circumstances change. You can also lay out guidelines for your trustees to follow if you are incapacitated by illness or injury.
Speaking to an attorney is one of the best ways to determine which type of trust will achieve your goals. With experienced legal counsel, you can create a plan that protects your interests today and upholds your wishes in the future.