A living trust is one of the essential tools in estate planning to ensure the proper disposition of one’s assets without going through an extensive probate process. Moreover, when a trustor decides to establish a living trust, they need to decide whether they want a revocable or an irrevocable trust. Having a clear understanding of the pros and cons of each will help the trustor determine which one is the best option for them.
A flexible living trust
As its name suggests, a revocable trust can be subject to changes at any time after its creation. If the trustor expects changes in their life in the future, this trust might be for them. Alterations to the trust can include adding or removing assets and beneficiaries and changing the trustee, among others. Moreover, a trustor can also revoke the entire trust if it no longer aligns with their wishes.
But while this trust has many benefits, it still has its disadvantages. For one, a revocable trust does not protect one’s assets from creditor and estate tax claims.
A trust that protects assets and minimizes taxes
Contrary to a revocable trust, an irrevocable trust can no longer be subject to modifications once established. However, it does offer creditor protection and minimize estate taxes. This is because upon creating an irrevocable trust, the trustor transfers their assets to the trust and no longer holds ownership. Since the trustor transferred their ownership, those assets no longer form the trustor’s estate and cannot be subject to creditor and tax claims.
To each their own
Both types of living trust have their respective benefits and disadvantages. But at the end of the day, it is for a trustor to decide which option is best for them given the circumstances surrounding their life. Each case is unique, and estate planning tools like living trusts are there to aid people based on their specific needs.