While most of us have heard of “trusts,” few understand the differences between the various types of trusts, specifically revocable and irrevocable trusts. When it comes to estate planning, these two types of trusts are discussed most often. However, the differences between these types of trusts—and when (and how) they should be used—is where things start to get blurry for most people.
What are the differences?
With a revocable trust, the trustor (also known as the “Grantor”)—or creator of the trust—retains ownership of the trust assets throughout their lifetime. It is not until the trustor passes away that the trust assets are distributed to the trust beneficiaries. An irrevocable trust is when the assets within the trust no longer belong to the trustor. In other words, the trustor no longer retains rights of ownership of the trust assets.
Modifying the Trust
If you are considering setting up a trust for your beneficiaries, you should consider the type of control you’d like to retain over the trust. The main difference between an irrevocable trust and a revocable trust is the ease of which the trust can be altered after it is created and executed.
With a revocable trust, the trustor can make changes to the trust, modify terms, or even revoke the trust completely.
In comparison, an irrevocable trust is one that is permanent once it is signed and funded. The language within the irrevocable trust normally indicates that the trust cannot be changed or modified. Only in extreme cases can the irrevocable trust be changed at a later date, which normally requires going through a lengthy court process.
How Assets are Protected
With a revocable trust, the trustor (also known as the “Grantor”)—or creator of the trust—retains ownership of the trust assets throughout their lifetime. It is not until the trustor passes away that the trust assets are distributed to the trust beneficiaries. An irrevocable trust is when the assets within the trust no longer belong to the trustor. In other words, the trustor no longer retains rights of ownership of the trust assets.
Taxes, Taxes, Taxes
An additional consideration is how much you want to pay in federal or state estate taxes. Since a revocable trust is owned by the trustor, the assets within the trust are included in the total value of the trustor’s estate.
However, an irrevocable trust is no longer owned by the trustor, so the assets within it are no longer included in the total value of the trustor’s estate.
We Can Help
To learn more about revocable and irrevocable trusts and which type is right for your estate, please do not hesitate to contact the dedicated team at Caress Law either by calling (503) 292-8990 or using the contact form on our website. Caress Law, PC also offers a Family Protector Program, which is a monthly program designed to ensure your family is protected now, and in the future. Contact us to learn more about this valuable program.
