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What are revocable and irrevocable trusts?

On Behalf of | Dec 22, 2023 | Estate Planning |

Trusts are a fundamental part of estate planning that offer a way to manage and protect assets during and after one’s lifetime. Two main types of trusts are irrevocable and revocable trusts, each of which serves distinct purposes and offers different benefits and limitations. 

All trusts share certain benefits, such as bypassing the probate process after the trustor’s death. This provides an efficient distribution of assets to beneficiaries and keeps the estate’s details private.

There are also some very specific differences between these two types of trusts. Understanding those can help individuals who choose the most appropriate option for their needs. 

What is a revocable trust?

A revocable living trust is a legal entity created to hold and manage assets. A revocable trust can be altered or terminated by the trustor at any time during their lifetime. This flexibility is a significant advantage, allowing the trustor to adapt the faith to changing circumstances or needs.

What is an irrevocable trust?

An irrevocable trust can’t be altered or terminated once it has been created. The only exception to this is if there’s permission from the beneficiaries or the court. Once the trust is established and funded, the creator no longer has control of the assets. Instead, that control is passed to the trustee. 

Because of this division between the creator and the assets, the assets in an irrevocable trust are protected from creditor claims. There are also tax benefits to this arrangement because the assets aren’t considered part of the estate.

Trusts can be a very important part of a comprehensive estate plan. Carefully considering how every aspect the estate plan reflects your wishes is critical.