Understanding The Difference Between Irrevocable And Revocable Trusts
A key part of estate planning is the preparation of trusts. It is important, however, to ensure you have the correct kind of trust. There are revocable trusts, irrevocable trusts, asset protection trusts, irrevocable life insurance trusts and more. How do you determine what kind of trust you need? What is the difference between revocable and irrevocable trusts?
Revocable trusts, also known as revocable living trusts, are trusts which can be modified or changed at any time. They allow the trust maker to retain ownership and control of their property while they are still alive. If you create a revocable trust and decide, at a later point in time, you want to change a beneficiary or some other aspect of the trust, you can do so through a trust amendment.
Irrevocable trusts, on the other hand, are trusts which cannot be changed once the trust agreement has been finalized and signed. Revocable trusts will become irrevocable trusts as soon as the trust maker dies. Some of the main reasons for setting up irrevocable trusts include:
- Reduction of estate tax: Irrevocable trusts, such as irrevocable life insurance trusts, are often used by individuals in order to remove the value of property from their estate and put it in the trust. This is done so the property cannot and will not be taxed when the person dies. Setting up an irrevocable trust benefits surviving beneficiaries.
- Asset protection: Irrevocable trusts can also be used to protect assets. When assets are placed in an irrevocable trust, they are no longer under the control of the trust maker. Therefore, the trust maker’s creditors and others, who are not listed as beneficiaries of the trust, have no legal access to those assets.
- Irrevocable charitable trusts: When an individual establishes an irrevocable charitable trust, they are setting up for assets to be transferred or donated to a specific charitable organization. If the transfer of said assets occurs prior to the trust maker’s death, then the trust maker receives a charitable tax deduction during the year the transfer is made. Should the transfer of assets occur after the trust maker has died, then their estate or beneficiaries would be the ones receiving the charitable tax deduction.
Preparing irrevocable trusts can be tricky. You need a lawyer who is knowledgeable and understands all aspects of estate planning. An improperly prepared trust could lead to legal issues, which might delay or severely impact the dispersal of your estate to your intended beneficiaries after you die. Ensure your beneficiaries receive your assets and estate exactly as you intended. If you or a loved one needs to prepare an irrevocable trust, contact an irrevocable trusts attorney at WealthPLAN, PC, today.
WealthPLAN, PC, Can Help With Irrevocable Trusts
WealthPLAN, PC, has over 30 years experience in estate planning, advanced estate planning, tax, trust administration and litigation. We have a California State Bar certified specialist in taxation law, probate, estate planning and trust law in house, and we believe in helping you meet your irrevocable trust and complete estate planning needs. We are here to evaluate your exact circumstances in order to advise and assist you in making the smart, timely choices which will not only reduce the exposure of your estate to taxes, but also allow your beneficiaries to receive your assets and estate as you intended.