Revocable vs Irrevocable Trusts: Which Option is Right?
Are you planning for the future? Do you know the difference between a revocable vs irrevocable trust?
The revocable vs irrevocable trust debate is one worth having. Unfortunately, the majority of Americans never make it that far as six-in-ten still lack an estate plan of any kind.
But once you mobilize the creation of your estate plan, it’s time to consider the difference between revocable and irrevocable trust planning. In the following article, we’ll examine the advantages of each, and hopefully, it will help you decide what’s best for your situation. Let’s begin!
Defining a Revocable Trust
A revocable trust puts you in charge of the income until your death. After this, it transfers to the beneficiaries you’ve set forth.
It gives you the freedom and control over your earnings while you’re alive. It ensures your funds stay out of probate when you die. Many are drawn to it for its “win-win” aspects of serving you during life and protecting your loved ones from the nightmare of red tape if you die intestate (or without an estate plan).
And an Irrevocable Trust
In an irrevocable trust, you remove assets from the reach of others, yourself included. This has an advantage in that creditors are unable to pursue your earnings if you are legally vulnerable.
An irrevocable trust keeps creditors from being able to swoop in and claim your estate. This offers you peace of mind while alive and ensures loved ones will be cared for in the event of your death.
How Do They Handle Asset Protection?
A revocable living trust gives you absolute control while you’re alive. You decide who your beneficiaries are. You use your money as you need it while protecting it for their later use.
And this is not exclusive to death. If you should experience a debilitating injury and later recover, the trust can give your beneficiaries the ability to act on your behalf. But once you’ve recovered, it allows you to reclaim control.
An irrevocable trust removes that degree of control. While that may not sound as appealing, there are good reasons to set your estate plan up with one of these.
If you are in a position that invites significant legal attention, an irrevocable trust will limit the abilities of your detractors to go after you. Same with creditors.
But it’s not a Get Out of Jail Free Card either. You cannot simply set one up to avoid liability if you’re in the middle of an impending or existing lawsuit.
Which Is Better at Reducing Your Estate Tax?
The question of what is a revocable trust often comes with questions about estate tax vulnerability. Yes, it’s included in the value of your estate when you die, thus making it susceptible to taxation.
Irrevocable trusts remove the assets from your inventory, so to speak. This reduces the size of your estate and, thus, the amount open to taxation. It’s often a choice for people who resent paying taxes.
Which One Wins the Revocable vs Irrevocable Trust for You?
If you are ready to settle the revocable vs irrevocable trust debate, then you need a qualified attorney well-versed in estate law to help. This is where we can help.