Many people in Massachusetts are likely somewhat familiar with the estate planning tool known as a trust. Trusts are among the most effective and beneficial of all estate planning tools and they can be used to provide for one’s child, favorite charity and beloved pet. There are many different types of trusts and, depending on an individual’s short and long-term goals, an estate planning professional can provide information and advice about which trust is appropriate.
In previous blogs, we’ve discussed some of the basic components of a special needs trust and pet trust. In this blog, we’ll take a look at revocable and irrevocable trusts and provide examples related to when and why an individual may decide to choose one versus the other.
After being established, a revocable trust can be revoked or otherwise altered at any point by the trust’s maker while he or she is alive. Also commonly referred to as a living trust, revocable trusts are attractive to due to the fact that, barring the trust maker’s death, any property or assets transferred to the trust can later be removed without penalty.
Revocable trusts are also beneficial for individuals who wish to avoid having certain or all of their assets go through the lengthy and often expensive probate process. One downside of a revocable trust is that any property or assets held in such a trust can still be seized by creditors.
Much like the name suggests, assets and property that are transferred to an irrevocable trust cannot later be taken out. Additionally, the provisions and directives attached to an irrevocable trust also cannot be altered or amended. Despite the inflexibility of an irrevocable trust, the establishment of such a trust does provide some key benefits. For example, any assets held in an irrevocable trust are no longer considered the property of the trust’s maker. Consequently, a trust’s contents are exempt from the probate process as well as from any state or federal taxes and protected from creditors.
Trusts are complex legal documents, the establishment of which can have serious implications to one’s estate and long-term financial goals. It’s important, therefore that individuals who have questions or concerns about establishing a trust consult with an attorney.
Source: The Motley Fool, “What Is an Irrevocable Trust?,” John Maxfield, May 8, 2015