You have decided to be proactive and set up an estate plan to protect yourself, your assets and the people you love. However, as you consider all the different options, you may run into some confusing terminology. One estate planning topic that you’ll likely encounter is a Trust and the various types of Trusts, including a revocable trust and an irrevocable trust. What’s the difference, and how can each one benefit you and your heirs?
The Revocable Trust
First, let’s consider the revocable living trust. There are several different names for this type of trust, including “living trust,” “revocable trust,” and “inter vivos trust.” Basically, all of these terms indicate a trust that you can canceled or altered anytime you like.
Changing the Trust
Imagine that you set up a revocable trust with one particular beneficiary in mind. Perhaps that person passes away, or your relationship with them changes dramatically. You may want to switch beneficiaries. Since you have a revocable or living trust, you can simply work with your estate planning lawyer to write up a trust amendment. The amendment alters the original terms of the trust to better fit your current needs.
Suppose you create a revocable trust, and then, when you look at it again ten years later, you hate everything about it. You just want to scrap the whole thing and start over or just cancel the trust altogether. With a revocable trust, you have the freedom to do that. You’ll need some help from your estate planning attorney to draft a trust amendment and restatement, but otherwise the process is not very difficult.
How to Use a Revocable Trust
Revocable trusts are handy for giving you a measure of control over how and when your beneficiaries use the funds in the trust. In many cases, they are helpful for avoiding probate court, protecting assets in case of mental disability, and preserving the privacy of the heirs after the trust maker’s death.
The Irrevocable Trust
Next up for consideration is the irrevocable trust. As the name implies, you cannot amend, modify, or revoke an irrevocable trust. Once you sign the document, that trust stands as it is. A revocable trust automatically becomes irrevocable when you die because you are no longer available to make changes or revoke it.
Altering the Trust
There are a few circumstances under which certain elements of the trust may be altered. If the trust includes the appointment of a “Trust Protector,” that individual has the power to explore the reasons associated with any proposed change. The Trust Protector looks at the facts and then decides whether or not the change should happen. In some cases, the Trust Protector can sign documents to effect the change, while in many cases the courts need to be consulted for approval.
How to Use an Irrevocable Trust
Since an irrevocable trust is so difficult to change, why would a person choose such a trust for their estate? If they are carefully crafted, irrevocable trusts can sometimes be used to decrease the amount of the taxes paid by the estate. The assets in the trust are considered outside of the estate, owned by the trust and not the trust maker. Therefore they cannot be taxed when the trust maker passes away. Irrevocable trusts are often used to reduce taxes owed by an estate, to enforce asset protection against creditors, or to support a charity in a specific way.
Still not sure which trust is best for you? Consult with your estate planning attorney in Maryland to get solid, practical advice about your estate plan.
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About Nicole K. White
After losing a close relative, Nicole witnessed the devastation, enormous expense and chaos caused by not having a simple estate plan. It is Nicole’s mission to educate single adults and parents, especially single parents, about protecting themselves, their families, minor children, and assets with comprehensive Estate Planning.