-Today, more than ever, estate planning has proven indispensable, and trusts are an essential part of it. Of course, you might have heard about trusts before. But if you have never interacted with them, you may not help but wonder what they mean.
Well, for the record, there are two types of trusts: revocable and irrevocable, and this post will take a more in-depth look at them.
What are Revocable Trusts?
A revocable living trust, also known as a living trust or an inter visitors trust, can be revoked or modified, and its content can be changed at any time. Ideally, you can revise different aspects of a revocable trust, including beneficiaries and the terms and conditions. All you need to do is file an amendment with all the required revisions.
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But why would someone consider this type of trust, and what are the associated benefits?
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A revocable living trust will safeguard your wishes.
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It helps beneficiaries avoid the lengthy and costly probate process.
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It holds qualified assets like RAs, 401(k)s, and 403(b)s..
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Privacy is guaranteed
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Revocable trusts also have downsides, which include the following:
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You give up your rights to the trust and can miss out on income tax benefits.
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There is limited creditor protection.
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What are Irrevocable Trusts?
An irrevocable trust cannot be altered directly by the grantor or beneficiaries once established. The grantor of an irrevocable trust gives up legal rights to their assets. Many people choose an irrevocable trust to protect their assets by ensuring they won’t be subject to estate tax after death.
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The benefits of irrevocable trusts include:
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They come with various tax benefits, such as exemptions from specific tax laws.
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They guarantee more creditor protection.
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They preserve privacy.
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The drawbacks of irrevocable trusts include the following:
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Gives the grantor limited asset control.
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It leaves you at the “mercy” of the trustee.
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Revocable vs. Irrevocable Trusts: What Should You Choose?
When choosing between a revocable and an irrevocable trust, you should remember that a lot is at stake. Of course, most trusts are established to help avoid hefty taxes. However, the best way to choose a type of trust is by considering your goals and getting expert advice from professionals.
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What’s more? Other factors to consider before choosing a trust include:
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Your desired degree of control in the trust
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Any concerns about incapacitation.
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Whether you prefer a tax protection
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If there are threats from creditors warranting protection.
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Trusts are undoubtedly helpful and flexible estate planning instruments. However, choosing a trust that suits your financial goals and will protect your assets is vital. This post has explored the benefits and drawbacks of revocable and irrevocable trusts to help you choose what suits your needs.
Are you looking to create a free revocable trust? Well, Forms.Legal is here to help you effortlessly make arevocable trust agreement. All you need to do is fill out a free online form on our website, download and print it for notarization.