What is an irrevocable trust?
You’ve worked hard your entire life to provide for yourself and your family. Now, you want to protect your assets in the face of an uncertain future. Trusts can offer a way to protect your assets from creditors during your lifetime and after your death. There are two main types of trusts, revocable and irrevocable. Those with significant assets will want to explore the benefits and drawbacks of each of these types of trusts to determine how to best preserve their wealth for the next generation.
Revocable Living Trusts
A revocable trust is a trust that can be amended or revoked at any time. To create a revocable living trust, you will retitle your assets into the name of the trust. You can continue to manage these funds up until your death, at which time the named trustee will take over and carry out the demands of the trust.
Revocable living trusts have several advantages over a last will and testament. They allow the assets inside the trust to pass to the named beneficiaries without the need for the expense and time delays of probate. The trust document will remain private, as opposed to a last will and testament which will be public. Further, a trust gives you much control over distribution of the assets upon your death.
A revocable living trust will not, however, shield your assets from creditors. Assets within the trust will still be considered your personal assets for creditor and tax purposes. A living trust allows you much flexibility to use the funds during your lifetime, but it may not be the right trust for you if you have concerns about creditors or potential federal or state estate taxes.
An irrevocable trust is a type of trust that cannot generally be changed once created. This may be intimidating for some, but the potential benefits of an irrevocable trust are enough to make many high earners become irrevocable trust believers. Assets placed within an irrevocable trust will not be considered part of your estate when you die. As such, you will not be taxed on these assets.
Further, irrevocable trusts offer true asset protection for you and your family. By placing assets within the trust, you are releasing control over these funds and thus the trust assets cannot be reached by creditors of the trust maker or the trust maker’s family. Contact a trust attorney for more information on whether a revocable or irrevocable trust is right for you.