While you may have seen the terms “revocable trust” and “irrevocable trust” before, many wonder what is the difference between the two. When it comes to creating a living trust, it is very important to understand the differences between a revocable trust and an irrevocable trust. The two are compared in further detail below.
What is a Revocable Trust?
A revocable trust is a trust that is able to be modified – or revoked – at any time, as long as you are of sound mind (i.e. have the mental capacity to fully understand the terms of the trust and any modifications being made).
One of the greatest benefits a revocable trust offers is flexibility. Because it is able to be revoked, you are able to maintain control over your estate and assets that are in the trust. Among other benefits is that a revocable trust is not subject to probate.
What is an Irrevocable Trust?
On the other hand, an irrevocable trust is a trust that is generally not able to be modified after it is signed. There are only a select few circumstances in which an irrevocable trust would be able to be modified.
Some of the benefits you can gain from an irrevocable trust include minimizing estate taxes, protecting your assets and accessing government benefits.
Which One is Better: A Revocable or Irrevocable Trust?
Ultimately, the answer to this question will depend on your personal circumstances and desires. With that said, it is very important to understand the differences between a revocable trust and an irrevocable trust so you can ensure that your estate plan is set up how you wish.
If you are looking to maintain control of your estate, a revocable trust can be the better option, as you will be able to make any modifications as you see fit. However, if you happen to have a large estate, are concerned about estate taxes and/or want to guard against legal action surrounding your estate, an irrevocable trust may be the better option.
Revocable and Irrevocable Trusts: Additional Information to Know
As you can likely tell, there are both advantages and disadvantages to both revocable and irrevocable trusts.
Additional information that is helpful to know about both revocable trusts and irrevocable trusts includes the following:
- Once you pass away, a revocable trust becomes an irrevocable trust – so it cannot be modified, even by the successor trustee.
- There are rare circumstances under which an irrevocable trust can be modified. This will almost always require court or beneficiary approval, however.
- If you believe that your wishes may change over time, it is best to set up a revocable trust so it is able to be modified in accordance with your wishes.
- If the value of your assets is over the federal estate tax exemption, it is best to set up an irrevocable trust. The federal estate tax exemption for 2024 is $13.61 million for individuals, and $27.22 million for married couples.
The process of setting up either a revocable trust or an irrevocable trust does not need to be stressful or complicated. For any assistance with creating and/or updating your trust, or any other estate planning needs, we are here to help. Contact us today to learn more about how we can assist you with your needs.
For more information regarding various estate planning and elder law topics, view our resources page, where you will be able to find previous blog articles, newsletters and our informative webinar series.
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