Last time we discussed some terminology associated with trusts. Now let’s look at how revocable trusts differ from irrevocable trusts and the benefits of having a trust.
Revocable versus irrevocable trusts
The terms of a revocable living trust (RLT) can easily be altered by the grantor during his or her lifetime. An irrevocable trust, on the other hand, can still be changed by the grantor but such changes are a bit trickier. Furthermore, with irrevocable trusts, the grantor typically foregoes total control of the property and must obey all trust rules and guidelines (restrictions on the grantor’s direct access to principal assets of the trust being the most significant rule that cannot be changed). Still yet, a trust can be revocable during the grantor’s lifetime and then become irrevocable upon the grantor’s death.
When most people use the word “trust” in the context of estate planning, an RLT is usually what they have in mind.
A revocable living trust allows you to maintain complete control over your assets while you are alive and after you have passed away. You don’t have to transfer your assets to the trust all at once, you can do so over time and even add to the trust as you acquire new assets.
Other benefits of a revocable living trust include:
- Avoiding probate. The probate process is time-consuming, needlessly expensive and exposes your assets and estate to public scrutiny and claims by creditors seeking to take money from your estate.
- Clarity and certainty. Basic wills can lead to disagreements among family members. A revocable living trust can help eliminate challenges to the will and ensure beneficiaries receive what you intended them to receive.
- Ongoing financial management. As your wealth accumulates, so too will assets in the trust. RLTs can be changed over time, to compensate for changes in your financial and family situation.
While RLT’s are wonderful planning tools, the biggest benefit of going with an irrevocable trust is asset protection and nursing home planning. We will dive deeper into irrevocable trusts next time.
Do you need a trust? The answer depends on your unique needs and goals. We’d be happy to discuss it with you at your earliest convenience.