For many people, the choice between an irrevocable trust and a revocable trust comes down to a matter of asset control. The truth is that there are some clear differences in benefits that should also be considered. Trusts have been around for a very long time, but they’ve only really begun to gain mainstream acceptance in the last several decades. When it comes to choosing between an irrevocable and a revocable trust, our estate planning lawyers can help you decide between revocable vs irrevocable trusts.
Revocable vs irrevocable trusts: how they are similar
At their core, both trust types share many things in common – both in terms of basic structure and fundamental benefits. On the structural side, the irrevocable and revocable trusts must have the same elements that every trust requires. Both require a grantor who makes the trust. That grantor is also responsible for providing the assets that are used to fund the trust so that it can accomplish its mission. Both trust types must have someone designated to serve as the trustee. The trustee is the person who is responsible for managing the trust and its assets, preserving those assets’ value, and distributing them to any named beneficiaries as instructed by the terms of the trust.
Revocable vs irrevocable trusts: how they are different
Simply put, it’s all about the ability to revoke the trust once it’s created – or the inability to do so. In the case of the revocable trust, the name says it all. This trust can be revoked or changed by the person who made it at any time while he’s still alive. That has some important effects on what the trust can accomplish, of course, and we’ll cover that in a bit. The irrevocable trust has a similarly self-explanatory name, and cannot be canceled or changed once it’s created. The inability to dissolve the trust has an impact on what you can accomplish with this type of estate planning tool. Of course, these two trusts have other differences as well. Those differences become clearer as we evaluate the respective benefits that each type of trust can provide for your estate planning effort.
The Benefits of a Revocable Trust
The revocable trust’s benefits have been widely discussed in recent years – although not always as accurately as one would hope. The basic benefits are essentially those provided by any living trust. With a revocable trust, you can avoid probate for trust assets. Since those assets can be distributed to heirs by the trustee, there is no need for a court-supervised process.
A revocable trust can preserve your privacy by keeping the settlement process out of the courts. Revocable trusts provide an orderly way to distribute assets, and can even ensure that your heirs receive distributions in less time than they might experience with probate. The revocable trust can enable you to maintain more control over your assets by naming yourself as the trustee, and you always have the option of ending the trust if it no longer suits your needs.
Benefits of an Irrevocable Trust
The irrevocable trust has its own benefits, of course – and some of them mirror those of the revocable variety. For example, an irrevocable trust also keeps trust assets out of probate and preserves privacy. It also provides a reliable mechanism for transferring assets when you die. It does not, however, provide you with the ability to exercise control over those assets. Once you relinquish ownership, you can neither exercise control over the assets nor reclaim them by dissolving the trust.
Since the assets are beyond your reach and no longer part of your estate, creditors cannot gain access to them in lawsuits or other actions. The IRS no longer counts those assets as part of your estate either, and that can mean big reductions in your estate tax liability. If you need to apply for Medicaid benefits for nursing home care in the future, the assets in an irrevocable trust won’t be counted when your eligibility is calculated. If you have questions about any of these issues ask our Charlotte estate planning lawyers.
Deciding which type of trust you need
Neither type of trust is inherently superior to the other, as they both have their role to play in the estate planning process. In fact, many people have revocable and irrevocable trusts within their estate plans, with each type used to accomplish different important objectives. That’s why comparing the irrevocable vs revocable trust can be so difficult for so many people.
Join us for a FREE seminar today! If you have questions regarding revocable or irrevocable trusts or any other estate planning needs, please contact our Charlotte estate planning lawyers at The Potter Law Firm for a consultation, either online or by calling us at (704) 944-3245 if you are in the Charlotte or Huntersville, NC area. If you are in Florence, KY call (859) 372-6655 or in Ashland, KY call (606) 324-5516.