Estate Planning: The Difference Between Revocable vs Irrevocable Living Trusts
You have worked hard to get where you are in life. Maybe you started a business, own a home and property, or have made wise investments. As you think about the future, it’s important to decide how you want those assets distributed and to make a plan to ensure those decisions are implemented. Sometimes people choose to establish a living trust, which is a written, legal document that helps protect your assets while you are still alive and provide for your family after your death. Essentially, you put your assets into a trust and assign a trustee (which can be yourself) to manage the trust property and administer your estate for your benefit during your lifetime and to manage the distribution of those assets after your death.
Although there are several benefits to having a living trust, arguably the most important is that you will protect your estate from the probate process, which can take over a year and incur significant legal fees. A living trust, on the other hand, can usually be settled within weeks. Other advantages include avoiding the probate process in other states if you own out of state property and providing the opportunity for a trusted family member or friend to manage the trust if you become incapacitated. In addition, some individuals choose living trusts because they are more difficult to contest than a standard will.
What assets should be in a living trust?
Generally speaking, you will want to include several different types of assets in your living trust, including:
- Bank accounts – checking, saving, and money market
- Real estate – homes and property
- Investments – stocks, bonds, and mutual funds
- Personal property – family heirlooms, jewelry, furniture, etc.
- Life insurance policy
Revocable vs. Irrevocable Living Trust
There are two types of living trusts – revocable and irrevocable. Each has its own advantages and drawbacks. The main differences between revocable and irrevocable living trust are:
- Flexibility: Revocable living trusts are most commonly used in estate planning since they allow you to amend, add to, or even completely revoke your living trust as the need arises, if your circumstances or finances change. As the name suggests, an irrevocable living trust is less flexible than a revocable living trust, requiring court or beneficiary approval for any changes once it has been notarized and executed.
- Ownership: In a revocable living trust, the person who created the trust continues to have ownership or control over the assets in the eyes of the law. Trust property in an irrevocable trust, on the other hand, belongs to the trust itself, rather than the individual.
- Asset Protection: Because assets in an irrevocable trust are controlled by the trust rather than the individual who set up the trust, they are better protected against creditor claims than assets in a revocable trust, which are still owned by the individual. If you don’t need to worry about creditors, however, revocable trusts are usually a better choice since you maintain control and can make changes easily.
- Tax Savings: Once assets are transferred into an irrevocable living trust, they are no longer considered a part of an individual’s taxable estate. Therefore, your beneficiaries may pay less estate tax after your death. This benefit is especially important for people with more extensive estates or assets.
We Can Help You Protect Your Family’s Future
Estate planning is one of the most important things you can do to protect your loved ones and ensure your long term wishes are carried out. If you’re wondering whether a revocable or irrevocable living trust is right for you, or have other questions about estate planning, our attorneys at Lonich Patton Ehrlich Policastri can help. Please call us today at (408) 553-0801 to set up a free, no-obligation consultation and discuss how our estate planning attorneys can customize our services to your unique situation and needs.