Do I want a revocable or an irrevocable trust?
Many people set up a trust as part of their estate plan. A trust offers unparalleled protection for assets, making it a great way to preserve wealth and build a legacy that will last for many years after the person is gone.
However, a trust can also go into effect during a person’s lifetime. This type of trust is known as a living trust, and it comes in two major categories: revocable and irrevocable.
In this blog post, we will discuss these two types and how you can decide which one is right for you and your plan.
When you set up a trust, you place property under the control of a trustee. The trustee has a fiduciary duty to manage the property for the benefit of the people or entities you name as beneficiaries of the trust.
Trusts are highly adaptable, and so you can name your family members or almost anyone you want as your beneficiaries. You can even name yourself as a beneficiary.
Many people name themselves as beneficiaries of their living trust, and then name their adult children or other relatives as successor beneficiaries. This way, the trust takes care of the person while they are alive and continues to take care of their loved ones after they are gone.
Life throws a lot of changes at us, and that doesn’t stop once we have created an estate plan. If you have created a living trust, you may find a few years later that it no longer meets your needs. You may want to change the beneficiaries, make some other change, or perhaps dissolve the trust.
As its name implies, a revocable trust allows you to make these changes. Of course, after you pass away, the trust becomes irrevocable, but during your lifetime, you have a great degree of control over your revocable trust.
That control comes at a price. Because you can access the property if you need to, New York law does not grant a revocable trust the same degree of protection it gives to irrevocable trusts. The property in a revocable trust may be subject to tax liability. It could also be accessed by your creditors in some circumstances.
It’s much harder to change the terms of an irrevocable trust. Doing so would require the consent of all the beneficiaries and/or a ruling by the court.
If you have set up an irrevocable living trust, it is largely out of your control. And because it is out of your control, the property is out of the reach of your creditors and the IRS.
Deciding which type you need
If you have decided you want a living trust, the next question is whether you want it to be revocable or irrevocable. To make this decision, you will want to consider how much control you want, as well as how many changes you foresee happening in your family in the years to come. If asset protection is your top concern, then an irrevocable trust may be your best option. However, if your family is still young and growing, you may wish to have the greater control that comes with a revocable trust.