When people are considering adding a trust to their estate plans, a common question is whether to make it revocable or irrevocable. Both types of trusts have advantages and disadvantages, and a lot depends on individual circumstances.
If you are considering drafting a trust, it is vital to understand the differences between revocable and irrevocable trusts. That way you can make an informed decision that is right for your particular needs.
In many ways, deciding between an irrevocable or revocable trust depends upon how much future control you need over your assets. As with any estate planning matter, you can benefit greatly from the advice and guidance of an experienced attorney.
Revocable trusts allow you to revoke or change its terms at any time. Below are some advantages and disadvantages of this type of trust:
- Assets held in the trust will avoid probate and pass directly to beneficiaries at the time of your death
- In the event of mental incapacitation, assets are managed by a trustee rather than by a court-appointed guardian
- Privacy of your estate is protected after your death, rather than becoming public record
- The trust does not protect you or your beneficiaries from tax implications
- Your assets will not be shielded from creditor actions
With irrevocable trusts, you immediately relinquish control of managing included assets to the trustee. Below are some other advantages and disadvantages:
- Assets included in the trust will not be subject to taxation in the event of a person's death
- The assets will not be included as an available resource for Medicaid planning
- All assets in the trust are excluded from creditor collections and professional liabilities
- Trust can be used for charitable estate planning
- You can ensure the continued care of a disabled dependent
- You cannot revoke, change or amend the terms of a irrevocable trust without approval from all beneficiaries
- You cannot fire a trustee without beneficiary approval