If you are thinking about setting up a trust, it’s important to understand the differences between a revocable and irrevocable trust.
Revocable Trusts (aka Living Trusts) are more common and offer flexibility while the owner is alive and of sound mind.
They allow individuals to name themselves as trustees, co-trustees and beneficiaries. They also bypass the probate process which can be costly and time consuming.
Revocable Trusts are a great option for anyone that wishes to create a plan for their assets. A revocable trust allows you to maintain control of your assets until you are no longer able to manage them for yourself. It is also very flexible, and you can make changes to it at any time as your life circumstances change. You can change beneficiaries, add or remove property from the trust, and alter any other provisions in the trust.
One major benefit of a revocable trust is that it can avoid Probate Court. Probate is the legal process by which a court ensures that your debts are paid and that your assets are distributed according to the law. It can be costly, time consuming, and public. It can also be difficult if you have real property in more than one state or if you wish to disinherit an heir. Using a revocable trust can help you avoid probate and all of the associated fees.
Another reason why a revocable trust may be an excellent choice is that it provides a way for you to name a successor trustee. This person would assume responsibility for managing your trust assets and distributing them to the beneficiaries you have named in the trust document. This can be very helpful if you have any family members who are prone to mental impairments, such as dementia. This can give your loved ones peace of mind knowing that someone they trust will be able to oversee the management and distribution of your estate should they become incapacitated.
Revocable trusts do not provide protection from creditors, however. This is because the assets that are transferred into a revocable trust still belong to the grantor. Therefore, if the grantor has large debts when they pass away, creditors can go after assets in their personal estate to satisfy the debt. This can be a problem for some people that want to use revocable trusts as part of their estate planning strategy.
A final reason why a revocable trust is an excellent choice is because it is very easy to set up and modify. This flexibility can be especially useful if your life circumstances change during the lifetime of the trust. If you have a revocable trust, you can amend it to reflect your new situation, adding or removing property and beneficiaries. This can be a much easier process than creating a new estate plan with a will.
An irrevocable trust is a type of living trust that cannot be changed or canceled after it has been established. One of the main reasons that people establish an irrevocable trust is to take advantage of estate tax exemptions. For example, a couple that is married and has children can avoid paying federal estate taxes on their combined estates by transferring more than $22 million worth of money, property, and assets into an irrevocable trust. This is a great strategy for those who have substantial assets and want to protect them from taxes. However, if the trust is not set up properly, it can lead to unintended consequences.