Pros and Cons of Revocable and Irrevocable Trusts
When it comes to estate planning, you have several options, but the biggest two are wills and trusts. It is important to understand what the benefits of each of these options are so you can make the right decision. You should speak with an estate planning lawyer to get more information about planning your estate. This simple guide will go over trusts, and what is unique about a revocable living trust.
What Is a Trust?
Trusts are essentially the process of giving something to a trustee, so they can give it to someone else at a later date. If you enter into a trust, you will be considered the “benefactor,” and anyone who received something is considered the “beneficiary.” Trusts can be entered into for any number of reasons, but if you plan to use one for estate planning, you will give your estate to the trustee, and then it is passed on to whoever you designate at the time of your death. The primary benefits of trusts are:
- Simpler to execute than wills
- Avoid estate taxes
- Can place conditions on individual items
The biggest downside of a trust is that they are generally more expensive than wills. The trustee will require a fee. It is possible, although uncommon, for the estate taxes of a will to be more than the trustee’s fee.
Revocable Vs. Irrevocable
There are many different kinds of trusts, but every trust also falls into one of two categories. These are revocable and irrevocable. The distinction is actually quite simple. In a revocable trust, you can access the trust anytime you want to. In an irrevocable trust, everything you put into the trust is completely locked away and can only be accessed when the conditions you set are met.
Revocable trusts are a good option if you are not confident that you will never need the resources you are pouring into a trust. Most people who decide they want to set up a trust decide to go with a revocable trust. The only real benefit that an irrevocable trust offers over a revocable one is related to tax and debt. An irrevocable trust removes all semblance of ownership from whatever is put into the trust. This means debtors cannot collect from it in most cases and courts cannot usually rule that portions of the irrevocable trust be paid.