Despite popular misconceptions, trusts are an essential estate planning tool for many people. You do not need to be ultra-wealthy or have numerous assets to make use of a trust. When used in conjunction with a will, the right trust can safeguard your estate even further.
According to U.S. News & World Report, there are many key differences between revocable and irrevocable trusts. Here are a few of those differences, so you can make the right estate planning decision.
Revocable trusts
A revocable trust can benefit you while you are alive. In the event of incapacitation, the successor of your trust will have the legal tools to handle the assets contained within. They also help you avoid probate, which means your assets will pass along to your heirs smoothly after you are gone.
It is possible to change revocable trusts during the course of your lifetime. As a result, they offer more flexibility than irrevocable trusts. However, they lack the tax benefits of those trusts, since taxes still apply to assets placed into the trust.
Irrevocable trusts
On the other hand, assets placed into irrevocable trusts are not taxed. This is because these assets are now owned by the trust and not yourself. They are also protected from creditors in many cases.
Unlike revocable trusts, irrevocable trusts do not allow access to assets during your life. It is possible to access funds, but only with a trustee’s approval. However, modern versions of irrevocable trusts provide more options for modification while also providing financial benefits.
The goals for your estate after you’ve died play a major factor in which option is right for you. If you still cannot decide, start by establishing those goals and go from there.