Should your trust be revocable or irrevocable?
You may already understand that, in your circumstances, a will is not sufficient to meet your estate planning goals. In this case, you may be examining the practicality of including a trust alongside your will. Basically, a trust will hold ownership of any assets you fund to it so that those assets may pass directly to your heirs according to the trust’s instructions. The assets will not pass through probate in most cases, and that can benefit your loved ones in the end.
However, you will also want to consider how your trust will affect you while you are still alive. Specifically, how much control do you want over those assets that you fund to the trust? The answer to this question may determine whether a revocable or an irrevocable trust is in your best interests.
The pros and cons of each
While both kinds of trusts offer confidentiality and protect assets from the complications probate might bring, there are some distinct differences that are important to consider carefully before deciding whether to create a revocable or irrevocable trust.
Essentially, the assets in an irrevocable trust remain locked in the trust, inaccessible to you once you have funded them to the trust. Many use this type of trust for gift giving or if they foresee the potential for lawsuits that may jeopardize their wealth. An irrevocable trust can protect those assets in many cases, including protecting family wealth from the IRS. However, you will not have the luxury of exercising your discretion for using those assets during your life.
The assets you fund to a revocable trust, on the other hand, remain accessible to you during your lifetime. Unlike with an irrevocable trust, you may remove assets or add assets to a revocable trust as you wish without dealing with a trustee. However, because you retain the rights to those assets, they may be vulnerable if you should face tax issues, lawsuits or creditor claims. The law assumes you still have the rights to those assets, and anyone with legal matters against you may claim them.
Which fits you best?
In order to decide which trust is better for your unique situation, you may benefit from taking some time to evaluate your goals and expectations. Obtaining sound advice and guidance may also help you to learn more about your options and to make a prudent decision. You may find that taking these steps can help you protect your loved ones, your assets and your own best interests.