All adults should ensure they have an estate plan in place that reflects their wishes. For some, having at least one trust is part of the plan. There are a variety of trusts available. Each one is considered either irrevocable or revocable. This categorization has to do with whether the creator of the trust maintains control of the assets in the trust or not, as well as whether they can change the terms of the trust.
While both of those categories pass assets down to your heirs and beneficiaries, they have some very specific differences. Understanding these classifications helps you to make decisions you feel are in your estate’s best interests. One of the biggest benefits of any trust is that it can bypass probate, which means your beneficiaries and heirs can maintain privacy.
Irrevocable trusts can’t be changed or canceled once they’re established. The only exception is if you have the agreement of everyone in the trust. You don’t have control over the assets in the trust. Instead, they’re managed by the trustee. This provides some protection from creditors because they can’t make claims against the trust. There are also some tax benefits associated with irrevocable trusts.
Revocable trusts, which are also known as living trusts, can be altered or dissolved at your discretion. This gives you the opportunity to modify it if you need to change the terms or beneficiaries. Because you maintain control of the assets, creditors can claim against the trust. There aren’t tax benefits for this type of trust.
You must create the trust and fund it for both categories of trusts. This means transferring assets into the trust. The terms of the trust become effective once both of those are done.
Creating a comprehensive estate plan is crucial to ensuring your loved ones are taken care of when you pass away. Everyone’s situation is different, so working with someone who understands your circumstances and can help you get everything situated can reduce stress. Ultimately, making sure you have everything in order is the priority.