What You Need to Know for Estate Planning: Understanding Revocable vs. Irrevocable Trusts
"Control or protection? When it comes to trusts, it’s about finding the balance that fits your goals.
When planning your estate, understanding the differences between a revocable trust and an irrevocable trust is essential. Both types of trusts help protect your assets, but they work differently and offer unique advantages. Let’s break down what each trust type means, and how they could impact your estate planning..
What Is a Revocable Trust?
A revocable trust (also known as a living trust) is a flexible estate planning tool that you can change or cancel at any time during your life. As the trustee, you retain full control over the assets in the trust, which means you can add or remove assets, change beneficiaries, or even dissolve the trust entirely.
Pros of a Revocable Trust:
Flexibility: You can make changes whenever needed.
Probate Avoidance: When you pass away, the trust’s assets don’t go through probate, making it easier and faster for your heirs to inherit your property.
Management During Incapacity: If you become unable to manage your own finances, a revocable trust allows a successor trustee to step in and manage your assets.
Cons of a Revocable Trust:
No Asset Protection: Since you retain control of the assets, they are not protected from creditors.
No Estate Tax Benefits: The assets in a revocable trust are still part of your estate, so they don’t offer tax-saving benefits like other estate planning tools.
What Is an Irrevocable Trust?
An irrevocable trust, as the name suggests, cannot be altered or dissolved once it is established. Once you place your assets in an irrevocable trust, you give up control of them. You cannot change the terms of the trust or reclaim the assets.
Pros of an Irrevocable Trust:
Asset Protection: The assets are no longer part of your personal estate, making them safe from creditors and lawsuits.
Estate Tax Reduction: Since the assets are no longer considered yours, they are removed from your taxable estate, which may help reduce estate taxes.
Eligibility for Assistance Programs: If you need government assistance programs, such as Medicaid, an irrevocable trust may help you qualify by reducing your available assets.
Cons of an Irrevocable Trust:
Loss of Control: Once assets are transferred to the trust, you can no longer manage them. You lose control over any changes or withdrawals.
Inflexibility: You cannot modify or revoke the trust after it’s created, which can be a limitation if your circumstances change.
Which One Should You Choose?
The choice between a revocable or irrevocable trust depends on your specific estate planning goals. If you want more control over your assets and flexibility to change your plan, a revocable trust may be the better option. However, if protecting your assets and reducing estate taxes are more important to you, an irrevocable trust could be the way to go.
Both trusts serve important purposes in estate planning, and it’s a good idea to consult with an estate planning professional who can help guide you to the right choice based on your unique situation.
"Plan with confidence. Contact Legacy Promises Network to learn how a trust can secure your family's future."
