Many individuals create trusts as a part of estate planning, as these documents can assist with protecting money, as well as outlining the plan for dispersal of funds, while the creator of the trust is still living. However, deciding which type of trust suits an estate can affect its usefulness and efficiency.
U.S. News notes that those who wish to choose a trust can choose between revocable and irrevocable trusts, but those deciding on which may best serve them may want to keep a few factors in mind before making a final choice.
1. The size of the estate
Trusts are not simply a tool for the wealthy and can provide their grantors, or creators, with a variety of benefits. Before choosing a trust style, the grantor and his or her attorney may want to discuss the size of the estate and how this might affect the dispersal of funds or if any of the amounts might change in the future. For example, if an area of a trust loses value and the overall size of an estate shrinks, the grantor may want to choose a revocable trust so he or she can make changes as needed.
2. The nature of the accounts
Not all types of trusts suit the accounts that require guardianship. Those who wish to protect a 401k account or IRA may want to choose a revocable trust, as these qualified accounts may also require changes in the future, something that an irrevocable trust could not provide.
3. Tax laws
Grantors worried about tax penalties and fees may want to choose an irrevocable trust, as accounts held in this manner and subject to taxation under state and federal guidelines are often shielded from such fees.
Both revocable and irrevocable trusts have benefits for the grantor and the beneficiaries alike. Grantors may want to review each carefully before drafting the details of their trusts.