When creating an estate plan, many wonder whether they need a trust, and if so what kind. To that end, there are generally two kinds of trusts, revocable and irrevocable – both of which operate differently, and help achieve different estate panning goals. The main difference between a revocable trust and irrevocable trust is that the former can be changed while the latter cannot – but this seemingly mundane difference is in fact quite important.
There are several potential benefits to using a trust as part of your estate planning. First, assets held in a trust do not have to go through the probate process like those controlled by a will. Moreover, trusts offer more control over the distribution of assets than a will can provide. For example, while a minor may be able to inherit property at 18, they still might not be mature enough to use it wisely. A trust can specify that a person does not receive their inheritance until they reach a certain point in the future that you decide, or at a time that the trustee deems appropriate.
In the above situation, the person who creates the trust, or grantor, might use a revocable trust, also called a living trust, as assets placed into a revocable trust can be removed at any time during the grantor’s life, and a revocable trust can even be dissolved. The amount of control that the grantor is able to retain with a revocable trust makes it an attractive option for many.
Alternatively, an irrevocable trust offers a number of advantages that may be attractive to a grantor. Because an irrevocable trust usually cuts off the grantor’s control over the trust assets completely, it can protect the assets held in trust from other threats, including creditors, ex-spouse in a divorce, and even taxes.
Ultimately, people considering trust planning should talk to their financial professionals, attorneys, and family members to help them choose the best type of trust to suit their needs.