Posted by Dana Law Group on November 25, 2022
Though living trusts can be tailored to your needs, they generally fall into one of two categories: revocable and irrevocable.
In this article, we discuss the key differences between revocable and irrevocable living trusts, providing insight that will help you decide which type is right for you.
A living trust is a trust you create when you are still alive.
Living trusts are very similar to wills. However, unlike wills, living trusts do not require verification by the court after you pass away. Rather, a trustee is responsible for distributing assets directly to your heirs.
A revocable living trust (sometimes simply called a living trust) is one that can be modified at any time. The owner can remove beneficiaries, designate new ones, and modify stipulations regarding asset distribution.
In most cases, you can even move assets out of the trust without facing any penalties.
Flexibility is the key advantage of a revocable living trust. If your life circumstances change, you can make amendments.
However, this flexibility comes at a cost. Namely, the trust assets are not shielded from creditors. If the trust’s owner is sued, for example, these funds can be liquidated.
Assets in revocable trusts are also subject to state and federal estate taxes.
Comparatively, the terms of an irrevocable living trust are rigid as soon as the agreement is signed.
Only under very specific circumstances can the terms of an irrevocable trust be modified. Even then, these changes must be approved by all beneficiaries or by order of the court.
Clearly, irrevocable living trusts are less flexible. However, they come with unique advantages.
Chiefly, the assets placed in irrevocable trusts are safeguarded from creditors and cannot be liquidated in the case of a lawsuit.
Furthermore, the benefactor’s assets are not subject to estate tax upon death. The benefactor is also exempt from paying taxes on income generated by estate assets.
When trying to decide between a revocable or irrevocable living trust, consider your needs and values.
If your number-one priority is flexibility, then a revocable living trust is likely the best option. However, if you would rather safeguard your heirs from estate tax, then an irrevocable living trust may be best.
If you still can’t decide which type of trust is right for you, contact Dana Law Group. During a consultation, our estate law attorneys in Arizona can evaluate your unique circumstances and offer advice that will help you create a lasting legacy.