If you opt to draft a trust when estate planning, you need to be adequately informed. One of the things to understand is the difference between a revocable and an irrevocable trust. Which one should you use?
Here is what you need to know:
Their main difference
The main difference between a revocable and an irrevocable trust is that with the former, you, as the grantor (the person who created it), can name yourself as the trustee, giving you the right to change its terms as you wish. You can add or remove assets or beneficiaries. Additionally, you can revoke the trust following the terms outlined in it and, in turn, regain full ownership of your assets. This makes revocable trusts more flexible.
On the other hand, with an irrevocable trust, a grantor needs to relinquish ownership of their assets to a trustee. This trust cannot be changed or canceled after it’s created except under very limited circumstances with the consent of all beneficiaries.
A revocable trust becomes irrevocable after the grantor’s death since the possibility of exercising the power to change or terminate it will have ended.
Which one should you use?
These categories serve different purposes. The flexibility of a revocable trust allows a grantor to make necessary adjustments. For example, if you created the trust when your child was a minor, you can easily change its terms when they become an adult.
Irrevocable trusts offer tax advantages. You can protect your assets from being taxed since they will not be under your ownership. Besides, you can shield them from creditors. It may be impossible for your assets to be liquidated to satisfy a judgment, seeing that they are not under your control.
Revocable and irrevocable trusts offer unique benefits. Learn more to determine which will work best in your case.