A trust is one of the most important estate planning resources that you can establish. When done right, a trust can offer a variety of benefits such as reducing your estate taxes, saving time, safeguarding your privacy and ensuring that your assets go to the right beneficiaries when you die.
There are different types of trusts. If you are considering setting up a trust, you are probably wondering which, between a revocable and irrevocable trust, is right for you. To make an informed decision, you’ll need to understand how these trusts work.
A revocable trust
A revocable trust, as the name suggests, allows you (the trustor) to make amendments to the trust as you deem fit. A revocable trust gives you control over the trust, its beneficiaries as well as its instruments. Here are some of the things you can do with a revocable trust:
- Add or remove assets and beneficiaries
- Change the trust’s instruments
- Sell off the assets in the trust
- Dissolve the entire trust
A revocable trust is a great option if you are looking for control and flexibility over your assets and their beneficiaries. Two major drawbacks of a revocable trust are that it does not provide tax benefits and neither does it protect your estate from creditors.
Irrevocable trust
An irrevocable trust, unlike a revocable one, is not easy to modify or disband once set up. In other words, this type of trust takes the control out of your hands. However, an irrevocable trust can be a great option if you are looking for tax benefits and/or protection from creditors.
A trust is a valuable estate planning tool. Seeking legal counsel can help you make an informed decision that meets your personalized needs when setting up a trust.