Trusts have become popular estate planning tools. Trusts come in many forms and can be constructed to accomplish specific goals in many cases. A basic trust consists of a trustor, a trustee, at least one beneficiary and assets that are used to fund the trust. Beyond the basics, trusts then fall into one of two broad categories — revocable and irrevocable. Although there are numerous other decisions that must be made when you create a trust, deciding whether your trust will be revocable or irrevocable is generally the starting point.
A revocable trust is often used to avoid probate. Probate is the legal process that is often required when someone dies. Probate inventories and values assets, pays debts and finally distributes estate assets. Avoiding probate allows your trust beneficiaries access to the trust assets without having to wait for the probate process to terminate. Most importantly for some, a revocable trust lets you make changes to, or even terminate, the trust at any time.
Probate can also be avoided by creating an irrevocable trust. In addition, an irrevocable trust allows you to avoid estate taxes and protect assets from creditors. You may also get capital gains and personal income tax benefits with an irrevocable trust that you don’t get with a revocable trust. What you give up with an irrevocable trust is the ability to make changes or terminate the trust. Once you create an irrevocable trust, for all intents and purposes you are locked in to the terms of the trust.
The best way to make sort through these issues is to work with an experienced and qualified estate planning attorney.