If you’re starting to think about getting your affairs in order, or if you have been looking into some different ways to protect your assets, you may have come across mentions of revocable and irrevocable trusts. Particularly if you are not familiar with these legal tools, or with the idea of trusts in general, you may not know what the differences are between the two types, or which one is better.
While it is always in your best interests to consult with a lawyer when it comes to these matters (because a lawyer can review your specific situation and point you towards the option that best suits your unique goals), here is a brief explanation and comparison of revocable and irrevocable trusts to get you started!
What Is A Trust, And Why Do You Need One In The First Place?
First off, it’s important to know what a trust is and why you need one before you choose which type of trust to create. A trust is a legal and financial arrangement between the person who owns the trust (known as the “grantor”), the person who manages the trust (the “trustee”), and the person or people who will inherit the trust’s assets upon its execution or based on the terms of the trust (the “beneficiaries”).
The primary function of a trust is to secure assets from creditors, taxes, government aid programs, lawsuits, and probate (which is an undesirable Georgia court process) and ensure that they will be used according to your wishes. You can work with an attorney to set up a trust, lay out the terms, and then transfer assets into the trust, such as your house, savings, etc.. Whatever the terms of the trust state will happen to the assets will happen, whether that is paying certain beneficiaries amounts over a long period of time, being used as investments, simply staying put until the time of your passing, or something else.
Note that in many cases you can be the grantor and the trustee and the beneficiary so long as you designate a backup trustee and beneficiary in the event of your death. A trust can do much to further your own wealth goals as well as be a source of protection for your family members!
If you don’t have a trust, you leave your assets vulnerable. They can be taken away from you in a variety of ways during your lifetime, and when you die, your assets will be depleted by probate costs. A trust is one fof the top protections you can give to everything you’ve worked so hard for!
There are many different types of trusts, but most types fall into one of two main categories: revocable and irrevocable trusts.
About Revocable Trusts
Revocable trusts are trusts that you can change the terms of. You can make updates as to who is a named beneficiary, how much money or what assets are inside the trust, when and how the contents of your trust are distributed, and more. As your life changes, your financial situation may change; these trusts are flexible and can grow with you. You own the trust and the assets in it, and you can (depending on the terms) continue to enjoy the benefits of those assets.
About Irrevocable Trusts
Irrevocable trusts, as the name suggests, are not flexible. Once they are set up, they cannot be modified, amended, or terminated without going through a complex process that may include a court order. If you create an irrevocable trust, you legally remove your right of ownership to the assets inside the trust. Because you don’t own the assets, you won’t be taxed for them or incur liability on income generated by them if they are invested.
Comparing The Two
Both revocable and irrevocable trusts offer different benefits, and have different drawbacks.
Irrevocable trusts offer tax shelter benefits that revocable trusts don’t (if you die and have a revocable trust, the assets inside are subject to state and federal taxes). If you are sued, assets in a revocable trust can be liquidated in a judgement, but assets in irrevocable trusts cannot be.
This means that if you have extensive wealth where taxes would apply and make a big impact on your estate, or if you work in a high-risk profession such as in the medical field where you may be sued at some point in your career, an irrevocable trust might be the smarter option.
However, for most people, the flexibility of a revocable trust is the highest benefit. This type of trust, unlike an irrevocable trust, allows you to keep adding family members as beneficiaries (such as grandchildren who may be born after the trust is created, etc.). If you are the grantor, you can be the trustee as well in the revocable trust, unlike with an irrevocable trust. A revocable trust is also more private (irrevocable trusts may go into public record in some circumstances).
An Experienced Trust Attorney Can Help You Choose Strategically!
You can look online to try to understand whether you should make a revocable or irrevocable trust, but even online guidance can be confusing and it’s not personalized to you! Also, making a trust is extremely complicated and requires extensive legal knowledge. Because he has over 30 years of experience helping people in Georgia set up trusts to preserve their hard-earned wealth, estate planning attorney Jeff Fouts of Fouts Law Group is intimately familiar with the ins and outs of both revocable and irrevocable trusts. He can go over the pros and cons of each with you, review your financial records, and determine which trust you should have depending on what you want your future to look like! You can get all your questions answered so you will have complete peace of mind.
No one knows what tomorrow will hold – getting started making a trust today is the best way to guarantee that everyone you love and everything you own will be protected, no matter what. Call Fouts Law Group today to schedule a free consultation!