If you are thinking of establishing a trust as part of your estate plans, one of the key decisions you’ll need to make is whether to go with an irrevocable or a revocable trust. They both offer distinct advantages and disadvantages, so it helps to understand their differences before making that call.
Below are some considerations that can help you decide between an irrevocable and a revocable trust.
Flexibility or level of control
One of the main differences between irrevocable and revocable trusts is their flexibility. You can alter or revoke the terms of a revocable trust at any time during your lifetime to accommodate changes you desire. On the other hand, you cannot change the terms of an irrevocable trust or revoke it once it is established, except in very limited circumstances and with the consent of all beneficiaries.
Asset protection capabilities
Assets placed in a revocable trust are generally not protected from creditors, lawsuits or divorce settlements because you still have control over the trust and legally own its assets. In contrast, assets in an irrevocable trust are typically shielded from such third-party claims as you no longer own them.
Tax implications
It is equally prudent to consider the tax consequences on your estate when choosing the type of trust. Assets held in a revocable trust are considered part of your estate for tax purposes, which may increase your estate tax liability. However, assets held in an irrevocable trust are generally not included in your estate, which can lead to significant tax savings.
In essence, there is no “better option” between a revocable and irrevocable trust. It all comes down to your individual needs and circumstances. Seeking qualified legal guidance can help you make an informed choice that can help you achieve your estate planning objectives.
