When it comes to estate planning, one of the most common elements is a trust. There are many varieties of trusts, but two of the most common are revocable and irrevocable. The main difference lies within the name; a revocable trust can be revoked or amended by the trustor while an irrevocable trust cannot. Each type of trust has its own benefits and drawbacks. Here are a few things you should know when considering which type will work best for your situation.
A revocable trust, or living trust, can be changed by the trustor at any time. This means that the trustor can change the way the assets are divided or handled. Once the trustor dies, the trust then becomes irrevocable, and can not be altered.
While a revocable trust safeguards the trustor’s wishes and avoids probate, there are a few drawbacks. There are no tax benefits or creditor protections in a revocable trust. Because the creator of the trust is allowed to modify it at any time, the law does not allow the trustor to hop in and out to reduce taxes or protect assets.
An irrevocable trust can only be modified or terminated with permission of the beneficiary, not the trustor. It does not offer the same flexibility as a revocable trust. Once the trust is transferred to the beneficiary, the trustor loses ownership.
The main reasons for setting up an irrevocable trust are for estate and tax considerations. Essentially, an irrevocable trust removes the trust assets from the trustor’s taxable estate and avoids estate taxes upon the trustor’s death.
Do you have more questions about Revocable and Irrevocable Trusts?
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As the most experienced CPA in the Inland Empire who specializes in working with seniors, Marcia L. Campbell is committed to helping each client thrive by caring for their personal and financial wellbeing with genuine interest, well-established expertise, and a focus on respectful partnerships. Marcia’s team specializes in a number of services including elder & financial care, court & trust accountings as well as private fiduciary and tax services. At Marcia L. Campbell, CPA, we understand the importance of our clients’ individual needs and are committed to helping them make the best personal and financial decisions for their future.