Differences Between a Revocable & Irrevocable Trust
The reasons for establishing revocable and irrevocable trusts are as diverse as those who have them. The circumstances for doing so also vary. As its name implies, a revocable trust can be revised or rescinded at any time. Conversely, irrevocable trusts are not subject to change or dissolution. The document must stand "as is."
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Function
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Revocable trusts are frequently used for estate planning. Also called "living" (inter vivos) trusts, they usually mirror an individual's will. Irrevocable trusts can be established while the person is living or deceased and are primarily used for asset transference and tax reduction.
Features
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Assets transferred via an irrevocable trust do not incur estate taxes since they did not "belong" to the individual at the time of their death. These assets also can be prepared sans capital gains taxes. Revocable trusts allow a "successor beneficiary" to be named who will receive asset "benefits" upon the "grantor's" death.
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Benefits
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Revocable and irrevocable trusts eliminate the need for probate to resolve disputes. These trusts relinquish the title to any assets, thereby allowing quick transfer to heirs.
Considerations
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Consider including a "Trust Protector" for any irrevocable trust involving sizable assets. This designee is authorized to appoint or dismiss trustees at their discretion. Consideration should be given to having life insurance premiums and pension accounts made payable directly to your revocable trust.
Warning
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Seek the advice of an attorney and a financial advisor before establishing either trust. They can help you make the right decision for your situation.
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