Understanding Revocable and Irrevocable Trusts
Trusts are legal arrangements where one party, known as the trustor, grants another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. There are two main types of trusts: revocable and irrevocable. Each serves different purposes and comes with its own set of advantages and disadvantages.
Revocable Trusts
Definition and Features:
A revocable trust, also known as a living trust, is a trust that can be altered, amended, or revoked by the trustor at any time during their lifetime. This flexibility allows the trustor to maintain control over the assets within the trust.
The trust becomes irrevocable upon the trustor’s death.
Advantages:
Control: The trustor can change the terms of the trust or dissolve it altogether.
Privacy: Upon the trustor’s death, the assets can be distributed without going through probate, which keeps the affairs private.
Efficiency: Helps avoid the time and expense associated with the probate process.
Disadvantages:
Less protection: Since the trust is revocable, assets are still considered part of the trustor’s estate for tax and legal purposes, offering less protection against creditors and lawsuits.
Irrevocable Trusts
Definition and Features:
An irrevocable trust, once established, generally cannot be altered, amended, or revoked. Once the trustor transfers assets into the trust, they effectively remove their rights of ownership to the assets and the trust’s terms.
The trust is a separate legal entity.
Advantages:
Estate taxes: Assets placed in the trust are no longer part of the trustor’s taxable estate, which can significantly reduce estate taxes.
Protection from creditors: Assets in the trust are protected from creditors and legal judgments against the trustor.
Government benefits: Can help beneficiaries qualify for government benefits like Medicaid by legally shielding assets.
Disadvantages:
Loss of control: The trustor cannot change the trust once it has been established.
Complexity and cost: Setting up and maintaining an irrevocable trust can be more complex and costly than a revocable trust.
Both types of trusts are invaluable tools for estate planning, reflecting varied personal circumstances, financial goals, and preferences for control versus protection. Given the complexities and significant implications of setting up a trust, obtaining professional advice tailored to your unique situation is essential. If you’re contemplating the creation of a trust, consult with Estate Planning Law Office of Jonathon L. Petty, Inc. to ensure your estate plan aligns perfectly with your objectives and adheres to state regulations. Ready to begin? Call us today at 559-374-2223 or complete our online form . We look forward to scheduling your appointment and helping you secure your legacy.
