Having a trust as part of your estate plan can effectively protect your assets and ensure that your wishes are carried out after your death. However, one of the most important decisions you’ll need to make is whether you should establish a revocable or irrevocable trust. Both types of trusts have advantages and disadvantages, so it’s essential to understand their differences before deciding which you need.
What Is a Revocable Trust?
A revocable trust is an estate planning tool that allows an individual, called a grantor, to retain control over their assets while alive and decide who will receive them after they die. With a revocable trust, the grantor can change the terms of the trust at any time while they are still alive.
In a revocable trust, the grantor typically serves as the trustee so they can retain control over its assets and how they are managed. The grantor can also name a successor trustee who will manage the trust’s assets in the event of their incapacitation or death.
The grantor can also designate beneficiaries or those who will inherit the trust’s assets upon the grantor’s death. Depending on the provisions in the trust document, the beneficiaries may only have access to the trust’s assets after the grantor has passed away.
One of the key advantages of setting up a revocable trust is that it allows for flexibility. The grantor can use the assets in the trust as they wish, change the terms of the trust, and appoint new trustees and beneficiaries as needed. This type of trust also allows the grantor to avoid probate court, as the trust’s assets will not be subject to probate proceedings after the grantor passes away.
What Is an Irrevocable Trust?
In an irrevocable trust, the grantor contributes assets to the trust, and the trustee manages and distributes those assets according to the grantor’s wishes. With an irrevocable trust, the grantor gives up all control over the trust assets and any rights to revoke or modify the trust in any way. Because of this, the trust cannot be changed or terminated without the beneficiary’s consent once the grantor establishes the irrevocable trust.
Some of the advantages of an irrevocable trust are that it offers more tax advantages than a revocable trust, can protect assets from creditors, and can help a beneficiary qualify for government benefits. Since the grantor no longer owns the trust assets and is not considered the owner for tax purposes, they are exempt from probate. Because the grantor has no control over the trust assets, they are not vulnerable to creditors’ claims.
Although there are many benefits to setting up an irrevocable trust, there are also some drawbacks. For example, once established, changing the trust can be difficult or impossible. Additionally, the trust assets will be managed and distributed according to the directives in the trust document, so the grantor loses control over the trust assets. Finally, there may be significant costs associated with establishing and maintaining an irrevocable trust.
Which One Is Right for You?
Deciding between a revocable and irrevocable trust requires taking the needs of the person creating the trust into account. A revocable trust can be changed or even terminated at any time by the grantor, whereas an irrevocable trust cannot be modified or canceled after it is created without difficulty.
A revocable trust allows for the grantor to retain complete control of the assets within it and can serve estate and trust planning purposes, such as avoiding probate. Irrevocable trusts provide more asset protection since they are not accessible by creditors or others making claims against the grantor’s estate.
Irrevocable trusts are also helpful in providing long-term care options, such as financial support to a disabled beneficiary or allowing a beneficiary to access income or assets from the trust in certain circumstances. When considering which type of trust is right for you, consider your short-term and long-term goals, financial situation, and other relevant factors.
Speak with a Dallas Estate Planning Lawyer
The best way to determine whether a revocable or irrevocable trust is the right choice is to consult a qualified estate planning attorney. At Staubus and Randall, our experienced Dallas estate litigation lawyers understand the complexities of these trusts and can provide sound advice on which type of trust is best for your specific needs. We also offer comprehensive estate planning services to ensure that your wishes are met in the event of incapacity or death. Call us today or contact us online to schedule an appointment and learn more about how we can help protect your family’s future.