We’ve all heard of trusts and wills, but what is the difference between a revocable trust and an irrevocable trust, and how will those differences affect your estate planning process? We understand that these issues sometimes seem complex and confusing, but our wills and trusts attorney is here to help sort out the mess for you. In this blog, we’ll define both types of trusts and provide key differences to help you make an informed decision.
What Is a Revocable Trust?
A revocable trust, also known as a revocable living trust or a living trust, is a type of trust that can be modified at any time. For example, this means you could place a piece of property into the trust now, and then consult with a wills and trusts attorney to remove it from the trust a few years later if you decided you wanted to. Any changes or modifications you make are called trust amendments. You can even change the entire agreement if you choose.
Unfortunately, assets held within a revocable trust will be considered for tax purposes. So when you die, your assets will all be taxed with state and federal estate taxes as well as state inheritance taxes. Additionally, revocable trusts do not offer any protection from creditors if you are sued.
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What Is an Irrevocable Trust?
An irrevocable trust is simply a trust that cannot be modified, even with a court order. Typically, the trust becomes irrevocable once the trust maker passes away. Property in the trust is no longer owned by the trust maker, instead, it is under the ownership of the trust. This provides the ultimate protection of assets against creditors. Additionally since the trust maker technically no longer owns those assets, he or she cannot be taxed for them.
If you’re trying to decide which type of trust is best for your situation, it’s important to acknowledge the strengths and weaknesses of both. A wills and trusts attorney can go into further detail for you but to put it plainly, revocable trusts are mainly used to avoid probate and simplify the transfer of assets to beneficiaries. Conversely, irrevocable trusts provide incredible asset protection from estate taxes, creditors, and the probate process.
Still Not Sure What You Need? Talk to a Wills and Trusts Attorney
Understandably, you may still be unsure about which type of trust is best for your situation. We recommend meeting with an experienced attorney to help you make a well-informed decision. At the Davidson Law Group, we’re happy to provide clarification and professional legal services to make the process easier for you. Contact us in Fort Worth, Allen, or Tyler to speak to a wills and trusts attorney.