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There Are Many Types of Trusts: 10 Considerations On Which Is Right For You
A revocable trust and an irrevocable asset protection trust are two distinct estate planning tools, each with several differing sub-types and their own advantages and limitations.
A revocable trust, often referred to as a living trust, allows the grantor (the person creating the trust) to retain control over the assets placed within the trust during their lifetime. The grantor can modify, amend, or revoke the trust at will, making it a very flexible option.
However, this flexibility comes at a cost in terms of asset protection and tax benefits. Revocable trusts do not provide protection from creditors or Medicaid in your lifetime. Additionally, the assets are still considered part of your estate for estate tax purposes.
On the other hand, an irrevocable asset protection trust can only be altered or revoked under very limited circumstances and many times only by court order. This may seem like a drawback, but it offers several advantages because assets placed in an irrevocable asset protection trust are typically shielded from creditors, reducing the risk of asset seizure. Moreover, they may also provide valuable tax benefits, including estate tax reduction.
So, it all comes down to what you are trying to accomplish in your estate plan. Revocable trusts offer more control and can be changed at will, but they provide fewer asset protection and tax benefits. Irrevocable trusts, while basically inflexible in terms of modification, offer enhanced asset protection and tax advantages. The choice between the two depends on numerous factors and while only an experienced estate planning attorney can advise you on the best course of action, key consideration that should inform your decision include the following:
Revocable or Irrevocable: 10 Considerations
- What are your primary goals? Are you looking for probate avoidance, asset protection, or both?
- What kind of access will you need to the trust assets and which restrictions do you intend to implement? Factors that form the answer to this question include age, disability, and remarriage.
- Who will be your trustee, what powers do you wish them to have, and what will be the procedures required of making changes?
- Do you need a trust protector or any other form of oversight?
- How much access and control do you wish to maintain while still living?
- Are you concerned about your beneficiaries' financial management abilities and needs?
- What impact might the limitations of an irrevocable asset protection trust have on your finances?
- Are beneficiaries reliant on governmental benefits?
- How will your trust fit into your general tax planning strategy?
- Who will have access, benefits, and control over trust assets?
To learn more about whether a revocable or irrevocable trust best suits your financial and estate planning goals, do not hesitate to reach out to The Law Firm of Blanche D. Smith either by calling (936) 301-0111 or using the contact form below.