During the estate planning process, you will have several options to choose from including wills and trusts. Many people prefer to choose a living trust as a trust can give them greater control over where their assets go after their death while also helping to keep much of their estate out of probate. However, should you decide that a living trust is the right option for you, you will need to choose between a revocable and irrevocable trust. If you are not familiar with these two types of trusts, here is a quick look at what you need to know about the differences between revocable and irrevocable trusts.
What is a Revocable Trust?
While revocable trusts are a common estate planning choice, you may find yourself asking: “what exactly is a revocable trust?” A revocable trust is essentially a legal arrangement in which a trust’s creator transfers their property and assets into a trust where it is held for the benefit of themselves during their lifetime. Property transferred into a trust is technically owned by the trust, but the trust’s creator can continue to benefit from the trust’s assets, and any income it generates, during his/her lifetime as the primary trustee. Upon the creator’s death, the assets within the trusts are transferred to the trust’s beneficiaries that the creator designated before their death, and the distribution of these assets is overseen by a trustee chosen by the trust’s creator.
What Does it Do?
The reason that this type of trust is considered revocable is due to the fact that the trust’s creator can continue to make changes and amendments to the trust during their life up until their death. The trust’s creator has the option to add additional assets to the trust, or remove assets, as well as change the trust’s beneficiaries, at any time after creating the trust.
How Does it Differ From an Irrevocable Trust?
The key difference between a revocable and irrevocable trust is that, unlike a revocable trust, an irrevocable trust cannot be altered once it is established. Even if you have a falling out with a relative and no longer want them to benefit from the trust, or you decide that you want to add additional assets to the trust, you cannot do so. Once you place assets in an irrevocable trust they also cannot be removed from the trust, but you can continue to benefit from income generated by the trust during your lifetime.
Which is Right for Me?
Many people prefer to choose a revocable trust when estate planning due to the flexibility that this type of trust can provide. However, there are circumstances under which an irrevocable trust may be preferred, as they can provide additional financial benefits compared to revocable trusts. This makes it important that you work with an estate planning attorney who can help you to determine which option is right for you.