As you work with us to decide how best to transfer your assets to your heirs, you may decide a trust is the right choice. Even trusts, though, come with a number of different options, and a better understanding of the options you have available is nothing short of an absolute must as you develop estate plans that work for you. In this article, we take a look at the similarities and differences in a revocable vs irrevocable trust.
A Closer Look At the Terms
Before you can understand which type of trust is best for your estate, it may help to define the terms involved with the revocable vs irrevocable trust debate.
- A Revocable Trust is sometimes called a living trust. It’s a legal document that can be amended. It creates its own legal entity, and it allows you – as the creator – to retitle any assets you see fit in the name of the trust itself. You choose a trustee to manage those assets on your behalf and on behalf of the beneficiaries.
- An Irrevocable Trust is also a legal document that creates its own legal entity. Similarly, you can retitle any assets you’d like to in the name of the trust, and you must have a trustee to manage those on your behalf and on behalf of your beneficiaries. Once the assets have been transferred into that irrevocable trust, however, you give up ownership of them and remove them from your taxable estate. A court decree must be issued if the trust is changed or revoked.
Revocable vs Irrevocable Trust – The Essential Differences
Despite their seeming similarities, there are actually a number of differences between these two estate planning vehicles. Tax benefits are a place you see a fairly large difference. There are no tax benefits with a revocable trust. With an irrevocable trust, however, you’ll see a reduction in the taxes you pay. The assets placed in a revocable trust are not protected from creditors, but those placed in an irrevocable trust are. A revocable trust is fairly easy to create and administer. An irrevocable trust, on the other hand, is a complicated legal process that’s tough to understand at times and even harder to administer.
Despite those big differences, there are some similarities as well. Both vehicles can help your heirs avoid probate. Both help to preserve your privacy as well.
Selecting a Trust That Truly Benefits Your Estate
At Elder Law, P.A., we’ll help you decide on the ideal way to protect your assets. Our dedicated attorneys will ensure your assets are preserved in the best possible manner – whether that means a revocable trust or an irrevocable trust.
The benefits of a revocable trust are clear. You have the ability to shift the terms of the trust or wholly dissolve it at any point in time. It’s effective the moment you’ve completed the paperwork, which means one advantage for your heirs – bypassing probate.
The benefits of an irrevocable trust are equally as clear. You have the ability to remove taxable assets from your estate, creating the ideal advanced tax planning opportunity. If you have a fairly large estate, taxes can be a concern – even in Florida. The federal estate tax exemption is $12.06 million per person. Anything over that will be taxed at 40%. An irrevocable trust may mean eliminating the estate tax burden to which your estate may be subjected. It can also help to protect your assets from creditors.
In the revocable vs irrevocable trust debate, it’s tough to select the right one to meet your needs. Generally, though, if you wish to avoid probate, you think your wishes for your assets might change over time, and you want to continue to use your assets without any restrictions after the trust is established, a revocable trust is ideal. If, however, the value of your assets is higher than the federal estate tax exemption, you’re concerned about future creditors, and you don’t think your wishes will change, an irrevocable trust is an ideal option to meet your needs.
Elder Law, PA Can Help
Setting up a trust – any type of trust – is complex. If you’re working through the revocable trust vs irrevocable trust debate and trying to select the ideal estate planning options to meet your needs, please contact us today to learn more.