Planning your estate is an important thing to do in order to prepare your loved ones and properly distribute your assets according to your wishes, but if you want to make a trust it’s important to know which kind you need in order for it to best fit your situation. There’s a few main differences between revocable and irrevocable trusts including differences in edits and taxes that can help you decide which kind of estate planning would be best for you according to an estate planning lawyer with our friends at the Brandy Austin Law Firm.
Revocable trusts are documents that can be edited and allow you to state what you’d like to do with your assets after your passing. A revocable trust, also known as an RLT, is the most flexible kind of trust you can make. You can change your RLT at any point during your lifetime in case you decide to change anything. Life can get crazy and you may go through some major life changes that require you to change your trust, with a revocable trust you’d be able to do that. You can add or remove beneficiaries and even add more assets to your trust which are just some of the possible changes you could make. One important thing to note is that after your passing, the trust becomes irrevocable, meaning it is not easily changed, which is why it’s important to have a successor trustee. A successor trustee is the person that will distribute your assets to the beneficiaries listed in your trust. You can also change your successor trustee if you have a revocable trust. Another important thing to note is that with a revocable trust, your assets are subject to federal estate taxes, which is a tax imposed on the deceased person’s assets. Some states do not have a state-wide estate tax but you still may have to pay the federal estate tax. Typically there is a threshold of how high the estate’s value is which determines if it is subject to federal estate tax or not. As of right now, if your estate’s value is $12.92 million or more per individual, you are subject to pay federal estate tax.
The second kind of trust is an irrevocable trust which cannot be changed except with a court order or very rare circumstances. Since irrevocable trusts are not so easily changed, they are not as commonly chosen but they are helpful in specific situations. Irrevocable trusts are not subject to estate taxes which is a positive aspect of these kinds of trusts. As well as not requiring estate taxes to be paid, irrevocable trusts also provide legal protection. If you were to be sued for something, the assets in your trust are safe from legal judgment. This is because when you transfer your assets into your irrevocable trust they are technically no longer yours since you cannot access them, meaning that in a scenario that you were sued, these assets cannot be taken away from you. Other than the changes in taxes and legal judgment, the basis of an irrevocable trust is the same as the basis of a revocable trust. You can still set aside assets to be later distributed to beneficiaries of your choosing. Something to keep in mind is that an irrevocable trust is basically set in stone the moment you sign it, but it has benefits other than flexibility such as tax benefits and legal protection. Similar to a revocable trust, after death a trustee that you appoint will be the person to distribute your assets to your beneficiaries.
Through all of this we can see that revocable and irrevocable trusts have the same purpose, to prepare your estate after your passing. Although the differences are few, they are definitely major differences so it’s important to know which plan will be best for you and your loved ones while preparing to plan your estate.
