Understanding the Difference between a Revocable and Irrevocable Trust
What is a Trust?
In estate planning, a trust is a written legal document whereby a relationship is established between the maker of the trust and another individual (trustee) for the ownership, control, and distribution of property for the benefit of the others (and sometimes the maker too). This legal document allows the person to manage property during life while ensuring a smooth transition of affairs after either he or she has died.
A revocable trust is commonly known as a living trust. A document containing written expressions is used to create the trust so it may hold assets like property, business assets or investments for the benefit of a person and/or his or her family. What makes a trust revocable is that the person who creates the trust (often called “grantor”) can dissolve it or modify it any time during an individual’s lifetime. A revocable trust is often designed to avoid the probate process.
An irrevocable trust may not be revoked or changed, and so this type of trust is usually created to produce certain tax or asset protection benefits. Because this type of trust is irrevocable, any assets transferred into it are no longer considered to be the settlor’s property. The consequences of this transfer is that the assets are often considered protected from the grantor’s legal adversaries and creditors, and can be exempt from federal and state estate taxes.
Trusts come in many different alternatives, but distinctive features exist making some revocable and others irrevocable. Both are documents which can take effect during an individual’s lifetime. When making a decision of which type of trust is appropriate for you, first consider how much control you want over your trust and the need you have for use of those assets.
With over 20 years of experience in creating estate planning documents, the Law Offices of Edward P. Graham, Ltd. can give you the desired legal protection by guiding you through the estate planning process for the optimal management of your hard-earned assets while looking for the best outcome in maximizing your legal and tax benefits.