Trusts are powerful estate planning tools that may help you manage and protect your assets. But with different types available, how do you know which suits your needs?
Understanding the difference between revocable and irrevocable trusts could help you make an informed decision.
What is a revocable trust?
A revocable trust or living trust offers flexibility and control. It may allow you to:
- Maintain control: As the grantor, you can modify, add or remove assets from the trust at any time.
- Manage your assets easily: You may function as the trustee. This means you may manage the assets yourself.
- Potentially avoid probate: Assets in the trust bypass probate. This could save your beneficiaries time and money.
- Maintain privacy: Unlike wills, revocable trusts are not public records.
It is important to note that revocable trusts may not offer protection from creditors or estate taxes. You may want to consider an irrevocable trust instead if this is a concern.
What is an irrevocable trust?
An irrevocable trust may offer stronger asset protection. However, it may come with less flexibility. It may offer you:
- Asset protection: Once assets are in the trust, they may be safe from creditors and lawsuits.
- Tax benefits: Irrevocable trusts could reduce estate taxes. They could even provide income tax benefits.
- Government benefit planning: They may help you qualify for certain government benefits such as Medicaid.
- Permanence: As the name suggests, once established, you may not be able to easily change or revoke this trust.
Trusts offer numerous benefits. However, once they are set up, you might lose direct control over the assets in the trust, and changes might be difficult to make.
Trusts are complex legal tools. When making your decision about which type of trust to choose, consider consulting an attorney. They could guide you through the nuances of each type of trust and determine which one aligns best with your financial goals and family situation.
The right choice might depend on your unique circumstances, estate planning objectives and the legacy you want to leave behind.