Revocable Trusts vs. Irrevocable Living Trusts

With the many types of trusts available to help you manage your assets while you are living and after you pass, it can get confusing to know which trust best fits your circumstances. Many people have heard of living trusts. A revocable trust is another name for a living trust. In short, you can revoke that trust at any time, unlike an irrevocable trust, which needs the approval of the beneficiaries to revoke it.

An estate planning attorney at France Law can help you determine which trust to add to your estate plan.

Trusts and Why You Need One

A trust holds your assets. It is a separate legal entity, which means that if you don’t want someone to know you own something, you can put it in a trust. Since trusts are private and do not have to be filed with the state, it is a good way to keep your business out of the public eye. A third party, a trustee, manages the assets in the trust once you set it up.

When you choose a trustee, choose someone trustworthy or a professional at a law firm. The trustee determines how to invest your assets and distributes them when you die. The trust contains guidelines to direct the trustee in managing your assets. You can also use certain trusts to avoid probate and reduce tax burdens.

Revocable Trusts

The assets you put into a revocable trust avoid probate, which saves your heirs money and the hassle of going through probate. It also allows your heirs to receive your assets faster. However, a judge still has to sign off on the trust.

Should you become incapacitated, the trustee manages your assets, making it easier to hold your assets for when you recover. And, the biggest benefit of a revocable trust is that you can change it at will. You can add and remove assets, heirs, change who gets what, and more. However, the revocable trust doesn’t protect you from lawsuits or creditors. You still maintain control over your assets when you set up a revocable trust.

Irrevocable Trust

The irrevocable trust works like a revocable trust, except you can’t change it. Once you fund the trust with your assets and sign it, you can’t change your mind. The assets in the trust are no longer in your control.

Irrevocable trusts do have the benefits of protecting your assets from lawsuits. Since the trust owns your assets, they can’t be taken in a lawsuit against you. And, by the same token, you can’t be taxed on your assets when you die, since the trust owns them, not you.

Another benefit is that when you get older and need to qualify for some programs with income level caps, you might qualify for them since those assets are owned by the trust, not you.

This all sounds great, but you do have to remember that you technically don’t own the assets in an irrevocable trust. That means you have to take legal action to change anything. For example, if you want to renovate your home, you have to get permission from the trustee and / or the beneficiaries to proceed with the renovations.

Types of Irrevocable Trusts

You can choose from several types of irrevocable trusts to manage your estate in the best way possible for your situation. A life insurance trust holds a life insurance policy on you. When you die, the policy is paid into the trust, and avoids estate taxes. The trust disburses the money to who you want to get it.

An AB trust divides the income in the trust. It’s usually used for married couples with high incomes. When you die, the money in Part A stays in the trust and the money in Part B goes to your spouse. A charitable trust is one you set up to donate assets to a charity. The first type of a charitable trust pays your heirs, then disburses the balance to charity. The second type pays the charity first, then disburses what is left to your heirs.