Revocable Living Trust or Irrevocable Living Trust: Which is Right for Me?

 Posted on May 08, 2023 in Estate Planning

As the name implies, a living trust is a trust established during a person's lifetime. The person who creates a trust is called the grantor. He or she transfers assets such as personal property, business assets, real estate, insurance policies, and bank accounts to the trust.

The grantor assigns a trustee to control the trust assets and distribute the assets to the beneficiaries upon the grantor’s death. The grantor may also serve as the trustee of a trust and assign a successor trustee to take over if he or she passes away.  

Living trusts are often used to transfer assets to beneficiaries without probate, which can be costly and time-consuming. However, this is just one of the many different advantages associated with a living trust.

The two main types of living trusts are revocable living trusts and irrevocable living trusts. In this blog, we will discuss the differences between the two main types of living trusts and how you can decide which type of trust is right for your unique situation.

Irrevocable Trusts Protect Assets and Reduce Taxes

An irrevocable living trust is established during the grantor’s lifetime and may not be modified or revoked. When assets are placed in an irrevocable trust, the grantor no longer owns the assets. Removing assets from an individual’s estate can be useful in several different ways.  

Irrevocable trusts are often used to protect assets from creditors or lawsuits. For example, statistics show that a significant percentage of medical doctors are sued for malpractice at some point in their careers. However, lawsuits cannot touch any assets contained in an irrevocable trust, making this a smart choice for professionals such as doctors who are worried about being sued.

A special needs trust is an irrevocable trust used to provide financial support to a disabled person. The disabled person benefits from the trust assets but does not technically own these assets. This is important because many disabled people need Supplemental Security Income and other types of government assistance, but these programs are income-based. If a disabled person is given money or assets outright, this could make them ineligible for government assistance.

Irrevocable trusts can also be used to reduce taxes. For example, a life insurance trust reduces estate taxes by removing life insurance proceeds from a person's taxable estate. Instead of the individual owning the insurance policy, the trust technically owns the insurance policy.

Revocable Living Trusts Provide Greater Flexibility

A revocable living trust may be changed or revoked at any point. Unlike an irrevocable trust, the grantor maintains control over the trust assets. The grantor has the right to move assets in or out of the trust, change beneficiaries, or modify the terms of the trust.

Revocable trusts offer much greater flexibility but do not offer the same level of asset protection. However, revocable living trusts are still a great option for avoiding probate, managing funds, and ensuring privacy upon a person’s death.

Many people use revocable living trusts to protect assets in the case of incapacitation through severe illness or injury. If the grantor is incapacitated, the successor trustee will make decisions on the grantor's behalf. Typically, a revocable living trust becomes an irrevocable trust upon the grantor’s death.

Contact our Fort Worth Trust Attorneys

There are dozens of different types of trust, each with its own advantages. Let our skilled Fort Worth estate planning lawyers help you create an estate plan that meets your unique needs. Call 817-349-7330 for a free initial consultation.

Source:

https://www.forbes.com/sites/christinefletcher/2018/08/16/9-reasons-why-you-should-consider-a-living-trust/ 

https://www.ssa.gov/ssi/?gclid=Cj0KCQjw0tKiBhC6ARIsAAOXutkRbqrZZR-TJVcVPR6I2S92jitPYv0_JTlKkUg65KRhJbACB1cdxD4aAjVqEALw_wcB