Living trusts can help you better disburse assets after your death and are so named because you create one during your lifetime. However, you may choose between a living trust that is revocable or irrevocable. Each has its benefits, so it’s important you understand which one may be a better option for your estate.
Trusts Protect Your Assets
While planning your estate, it’s important you consider placing as many assets as possible into a living trust. Probate can be time-consuming and expensive, which can deplete certain assets. However, assets in living trusts avoid probate.
Differences Between Revocable and Irrevocable Trusts
Here is the main difference between the two: just as its name implies, a revocable trust is changeable during your lifetime; in contrast, you cannot alter an irrevocable trust once you place assets into it. Each has its own advantages, and an attorney can help you decide which may best suit your needs. Some other major differences include:
- Ownership. While the grantor—the creator of the trust—maintains ownership of assets in a revocable trust until he passes away, the assets placed in an irrevocable trust no longer legally belong to the grantor. Instead, the assets belong to the trust itself. Though the grantor may continue to benefit from assets in an irrevocable trust—for example, living in his house or driving his car—the trust legally owns these items until ownership passes to the new owner, or successor trustee, upon the grantor’s death.
- Estate taxes. When the grantor passes away, assets in her irrevocable trust are not included in calculations of the estate’s total worth during probate. The assets in a revocable trust are part of the estate’s value, since the grantor still maintained ownership until the day she died. This may affect an estate’s federal tax liability.
- Protection. Because the assets in an irrevocable trust no longer legally belong to the grantor, they are protected from creditors and taxes when he passes away. However, because the grantor of a revocable trust still owns the assets within it, these assets may be subject to legal claims.
When You’re Ready to Plan Your Estate, We Are Here
If you’re weighing options for planning your estate, consider consulting with an experienced attorney. The team at Teague Campbell can help you understand your options and what tools may best suit your unique situation. To begin personalizing your estate plan with us, contact us by starting a live chat with one of our representatives now.