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Revocable Vs. Irrevocable Living Trusts
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By Igor Krishtul, ChFC, EA
up a trust is an important decision. Properly designed trusts can help
you achieve goals not possible otherwise. Trusts may provide additional
levels of protection. They may also be the most flexible tool to own
each individual is unique and has different goals and financial
situation. Also, things don’t always stay the same. As they
change, your financial and estate plan may have to be adjusted.
may become desirable on your part to make changes related to your
living trusts. Whether or not this is possible depends on the types of
trusts you set-up.
living trusts are ones that can be revoked. In English, it means that
you can change or even terminate your trust altogether. The term
“revocable” does not refer to any one specific trust.
Rather, this is a type of arrangement that includes many different
types of trusts.
say you set-up a trust for your children when they were small. Now,
they are out of school and make a good living. You, on the other hand,
are no longer working and can use additional cash. If your trust is
revocable, nothing can stop you from using your trust assets. You can
also withdraw everything and open an account in your name.
do you make your trust revocable? That’s not hard to do. Just
make sure your trust document clearly says so. In many states, your
living trust will be considered irrevocable, unless you clearly state
in revocable living trusts are not subject to probate. At the same
time, you can retain the full control over your property during
lifetime. When the grantor dies, a revocable trust becomes irrevocable.
trusts are ones that cannot be revoked. This should be obvious, right?
Once you transfer your assets to such trusts, you lose control over
them. There are situations when you can still have an influence over
the trust property. But, let’s make it very clear – money
and other property in irrevocable trusts no longer belong to you.
you sign the trust documents, all provisions specified in your trust
document are fixed. You cannot change anything. Nor can you remove any
property from the trust.
why would anyone voluntarily lose control over the property? Remember,
some people transfer huge sums of money and other property to such
trusts. Well, these trusts may come with significant benefits.
good things in life come at a price. This price includes resources,
time and sacrifices. Not being able to revoke your trust is the price
you've got to pay in exchange for potential rewards.
Irrevocable trusts offer two major benefits. One of the benefits involves tax savings. Another major benefit involves an additional level of protection against creditors. In both cases, the potential savings may be high enough to justify losing control.
Just as with revocable trusts, the term “irrevocable” does not refer to any one specific trust. There are many types of irrevocable arrangements aimed at accomplishing different objectives.
or not, assets in your living trusts avoid probate after death. Just as
with the last will and testament, you can provide for distribution of
assets to beneficiaries. Your will, however, is a public document.
Also, property passing to heirs through a will must be probated. Living
trusts also offer additional privacy.
You are not limited to having only one living trust. You may set-up separate revocable and irrevocable trusts. Each trust may be designed to accomplish different objectives during life and after death.
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