If you’re looking for a way to protect your assets, you may be considering a trust. When creating a trust, the grantor has to decide whether the trust should be revocable or irrevocable. In this article, we’ll explore the differences between revocable trusts vs. irrevocable trusts.
How Do Revocable Trusts Differ from Irrevocable Trusts?
A revocable trust allows the grantor the authority to modify or revoke the trust completely. They are typically used for estate planning purposes. They allow the grantor to maintain control over their assets during their lifetime, and provide for the distribution of those assets after their death.
Irrevocable trusts usually cannot be changed or terminated by the grantor once established. They are typically used for asset protection purposes. Once assets are transferred to an irrevocable trust, they are no longer considered part of the grantor’s estate and therefore are not subject to estate taxes or claims from creditors. They also provide a level of protection against lawsuits and other legal actions.
Trust Funds
An irrevocable trust can be used to set up a trust fund, which is a type of investment account used to hold and manage assets for the benefit of the trust beneficiaries. It can provide tax benefits, such as reducing the grantor’s estate tax liability and providing tax-free growth on the assets held within the fund.
How Can I Exercise Control Over My Trust?
Whilst an irrevocable trust does require giving up control and ownership of assets, there are ways to maintain some degree of control over the trust. The most common method to do this is by setting conditions. The grantor can include specific instructions or conditions for the trustee to follow when managing the trust. They can also set up a “power of appointment” provision in the trust, allowing them to appoint or remove beneficiaries or change the terms of the trust in certain circumstances.
Can I Make Changes to Irrevocable Trusts?
Despite its name, an irrevocable trust is not always set in stone. While the grantor cannot make changes to the trust once it is established, it is possible to modify or terminate the trust with the consent of all beneficiaries and the court’s approval.
- Changing the Trustee of an Irrevocable Trust
In the event that the trustee’s performance is unsatisfactory, the grantor has the option to replace the trustee of an irrevocable trust. This can be done through the provisions outlined in the trust agreement or by filing a petition with the court if such provisions do not exist.
- Allowances for the Unforeseen
Unforeseen circumstances can arise that require changes to the irrevocable trust. For example, a beneficiary may become disabled and require additional funds for care. In these situations, it may be possible to modify the trust or take advantage of provisions within the trust to provide additional support for the beneficiary.
Getting a Trust
If protecting your assets from creditors and lawsuits is a top priority, an irrevocable trust is the better option. It can offer more robust asset protection and estate planning benefits. Still, it is essential to consider its trade-offs. It is crucial to consult with a qualified estate planning attorney to ensure the trust is structured to meet your goals and needs.
