Revocable Trust vs Irrevocable Trust
A trust could be the best option for individuals to transfer assets either or during their lifetime or after their passing. A trust is a separate legal entity created to hold certain assets, managed by the trustee. Families tend to rely on trusts for The purposes of estate planning – to plan estate taxes, avoid probate, and transfer wealth.
Revocable trusts also translate to living trusts. They are lifetime trusts that could be subjected to change or be revoked at any moment during the creator’s lifetime. The originator (or granter) of the trust, as a rule during their lifetime, also serves as a trustee and beneficiary.Advantages of a Revocable Trust:
- Allows for Asset Management During Periods of Disability:
- If the granter becomes incapacitated, the successor trustee can manage assets held by the trust.
- Streamlines Asset Management After-death:
- The successor trustees will have immediate access to assets held by the trust when the granter dies.
- Avoids Probate:
- Assets transferred during life avoid probate at death.
- Offers Privacy:
- The provisions mentioned in a revocable trust do not turn into a matter of public record during certification proceedings, unlike wills.
- Lack of Tax Savings:
- Despite the assets transferred being out of the granter’s probate estate, their value will be included in the granter’s taxable estate.
- Lack of Asset Protection:
- Since the granter retains the power to revoke the trust, the trust assets are not protected from the claims of any potential creditors of the granter.
An irrevocable trust cannot be revised, changed, or adjusted like in the case of revocable trusts.Advantages of an Irrevocable Trust:
- Minimizes Estate Taxes:
- Property moved to trust, if treated as a completed gift for federal gift tax purposes, is not included in the granter’s taxable estate at death.
- Provides Asset Protection:
- For professions prone to lawsuits, this can prove handy, as trusts tend to provide protection from creditors of the granter.
- Protects Assets from Misuse:
- To regulate the misuse of the trust’s assets by beneficiaries, a granter is allowed to modify the terms of the distribution and withhold said assets.
- Complicated Setup:
- Can be complex and expensive to set up.
- Offers Less Flexibility:
- Typically, terms are not flexible and cannot be changed without permission from the granter’s beneficiaries.