Estate planning is not only challenging but also essential. Assets have immense potential to be treated without consideration, especially after the death of the rightful owner. Estate planning makes sure that such problems are dealt with while the owner is still alive. However, while estate planning is important, most people ignore it and therefore, there is not much that they know about it either. Revocable and irrevocable trust deeds are an important element in estate planning.
People use different names in order to refer to the same thing. For instance, revocable trusts are also called intervivos trusts, revocable living trusts or simply living trust. Intervivos is Latin for ‘between the living’. So, all three terms used refer to the same thing.
So, what are these trusts and how are they different? This article sheds light on the important aspects and details of revocable and irrevocable trusts.
What is a Trust?
It is a document created by an individual to help manage his assets. The trust can be applicable within the lifetime or after death. The fundamental idea behind the agreement is to define a trustee and beneficiaries for the assets owned by a certain individual.
As the name indicates, a revocable trust is one that can be amended as long as it is in effect. The trust creator can also choose to cancel it altogether. A revocable trust allows the asset owner to amend the beneficiaries, assets, distribution of these assets. The trustees can also be changed throughout the life of the owner. Once the owner passes away, the assets are handed over to the beneficiaries but are still managed by a succeeding trustee.
Irrevocable trusts are documents that are not amendable even by the owner. While an irrevocable trust cannot be changed into a revocable one, the reverse can happen. Revocable trusts can have specific provisions or clauses that render it irrevocable. These provisions can include specific dates or events in the life of the owner. Also, after the death of the trust owner, a revocable trust is automatically converted into an irrevocable one.
Irrevocable trusts are usually only considered by people who are looking for increased asset protection and are willing to give up control over their assets.
Pros and Cons
Each trust has its relative merits and demerits. While on the surface it might not seem like there are many advantages of an irrevocable trust, there are certain situations where benefits are derived by the owner. Some of these include greater asset protection, exemption from taxes and charitable giving. Under the irrevocable trust, assets are protected from creditors and lawsuits that might take it away. Moreover, there are a number of taxes like estate, capital gain and income taxes (in case of charitable giving) that can be avoided when assets are placed under an irrevocable trust.
The revocable trust on the other hand provides complete control of the assets to the trustmaker. They have the ability to amend or even cancel the document at any time they like. All other relevant additions or omissions can be easily made through a trust amendment document that is initiated by the owner.
Creating a revocable or irrevocable trust is a decision that rests entirely on the trust maker. Both documents have their respective benefits and disadvantages but a trustmaker is the person who gets to finally decide how their assets will be managed while they live and after they die. However, it is crucial that these things be taken care of at the earliest because in the absence of these documents, asset management can fall into absolute disarray.