When you use the word “trusts,” people think you are talking about high income people with complicated estate planning needs. However, everyone needs an estate plan, and trusts serve many different purposes, at all income levels.
The purpose of estate planning is to ensure that your property is distributed, according to your wishes. Without a will and other estate planning documents, there’s considerable room for things to go wrong. Trusts are one of the basic tools of estate planning, yet many people don’t really understand what they are or how they work.
Catch News’ recent article, “The Differences between a Revocable and Irrevocable Trust,” says that people will use different terms that refer to the same thing. Revocable trusts are also called intervivos trusts, revocable living trusts, or living trusts. The word “intervivos” is a Latin word meaning “between the living.” All three terms mean the same thing.
What are these trusts and how are they different? Let’s look at the important aspects and details of revocable and irrevocable trusts. It is a document created by an individual to help manage her assets. The trust can apply both during their lifetime or after death. The basic idea behind a trust is to define a trustee and beneficiaries for the assets owned by a certain individual.
A revocable trust is a trust that can be changed as long as it is in effect. The creator of the trust can also decide to cancel it. This trust lets the asset owner amend the beneficiaries, assets and distribution of these assets. The trustees can also be amended throughout the life of the owner. Once the owner dies, the assets are given to the beneficiaries. However, they’re managed by a succeeding trustee.
Irrevocable trusts cannot be amended, even by the owner. An irrevocable trust can’t be changed into a revocable one, but the reverse can happen. Revocable trusts can have specific terms that render it irrevocable. This can include specific dates or events in the life of the owner. After the death of the trust owner, a revocable trust is also automatically converted into an irrevocable trust. Irrevocable trusts are usually only considered by people, who are looking for increased asset protection and are willing to give up the control over their assets.
Each type of trust has pluses and minuses. Although it might not seem like there are many advantages to an irrevocable trust, there are certain circumstances where the benefits are derived by the owner. These includes greater asset protection, exemption from taxes and charitable giving. With an irrevocable trust, the assets are protected from creditors and lawsuits. In addition, there are estate, capital gain and income taxes (for charitable giving) that can be avoided when assets are placed in an irrevocable trust.
By contrast, a revocable trust gives total control of the assets to the creator of the trust. He can amend or even cancel the trust at any time. Any additions or omissions can be made through a trust amendment document that is done by the owner.
Trusts are not a do-it-yourself project. To properly protect your assets and your family, it’s best to sit down with an estate planning attorney and find out what your specific needs are. A good attorney will answer your questions, explain what they think will work best for you and why.
Reference: Catch News (September 19, 2018) “The Differences between a Revocable and Irrevocable Trust”