Trusts are important aspects of a comprehensive estate plan. A trust not only ensures proper management of your assets by your designated trustee but proper utilization according to your wishes and instructions as well.
The two primary trust entities, irrevocable and revocable, each have different advantages and disadvantages that may dictate which option is right for you and your estate plan.
Irrevocable vs revocable trusts
Though they share similarities, each of these two trust structures differs in setup and execution. These key differences can have a significant impact on both you and your beneficiaries.
- After creation, the terms of an irrevocable trust are set in stone immediately. However, it is possible to amend and even completely revoke revocable trusts.
- Revocable trusts are simpler to establish, as they require fewer concrete decisions and investigations.
- All relevant property and assets belong to an irrevocable trust once completed. In a revocable trust, asset ownership is transferable, with the power given to the trust creator to control and manage the assets at any time.
- Because an irrevocable trust transfers property ownership to the trust itself, assets gain protection from creditors and tax liabilities.
- Estates managed through an irrevocable trust are not subject to estate taxes after death. If legal action occurs against the trust’s creator, assets are also protected.
Trusts and estate planning
Both trust structures are ideal depending on the circumstances of your assets, the grantor, the trustee, the beneficiary and other relevant individuals. Whether your estate plan involves an irrevocable or revocable trust should depend on a careful assessment of the risks and potential benefits with regard to your unique considerations.
