Trusts are powerful estate planning tools that you can use to preserve your wealth, maintain your privacy, and provide for your family when you are gone. But if you’ve done any research on trusts, you may have heard about revocable and irrevocable trusts, leading you to ask, “What are revocable and irrevocable trusts?”
In simple terms, revocable trusts are those you, as the grantor, can change after you create them. Conversely, an irrevocable trust cannot easily be changed once you sign on the dotted line. Each type of trust has an important role to play in an estate plan.
Our estate planning attorneys at Batson Nolan PLC can help you use trusts, wills, and other types of estate planning tools to develop a plan that fits your needs and goals.
What Are Revocable and Irrevocable Trusts?
Revocable and irrevocable trusts are powerful estate planning tools that can preserve assets and insulate them from probate. If set up correctly, trusts can be used to minimize and, in some cases, avoid estate taxes. Like the humans who create them, trusts can own and transfer property, including a bank or investment account.
What Is a Revocable Living Trust?
A revocable living trust is set up during the grantor’s lifetime and can be changed easily. The grantor is the person who creates the trust. The trustee manages the trust and has the authority to make distributions. The beneficiaries are the people who receive the benefits of the trust, such as property or money.
With a revocable trust, the grantor can seamlessly transfer property in and out of the trust during their lifetime. Assets and property in a revocable trust usually do not go through the probate process. However, they might still be subject to estate tax.
What Is an Irrevocable Trust?
An irrevocable trust is a trust that may or may not be set up and funded during the grantor’s lifetime. Once created, it cannot easily be changed or revoked by the grantor, the trustee, or the beneficiaries. Instead, the appropriate parties must seek court permission to make changes.
An irrevocable trust may be set up for a variety of reasons. One of the primary reasons to set up an irrevocable trust is to avoid estate tax and probate. In most cases, assets in an irrevocable trust are exempt from estate taxes, so this type of trust can be a useful tool to help you preserve your family’s wealth.
What Is the Difference Between Revocable and Irrevocable Trusts?
The primary difference between revocable and irrevocable trusts is the ability of the grantor to make changes to the trust after they create it. In most cases, grantors can easily change a revocable trust after they execute the trust document. In contrast, grantors have little to no ability to change an irrevocable trust once it is established.
Examples of Revocable and Irrevocable Trusts
Revocable trusts are often used to distribute property while avoiding probate. For example, a grantor might place property in a trust during their lifetime so that it can be distributed to their children when they pass away.
On the other hand, a grantor might want to create an irrevocable trust through their will. In that case, the trust will be funded once the grantor passes away. The beneficiaries must seek court permission and follow other formalities to modify the trust.
When Should You Consider a Revocable or Irrevocable Trust?
Deciding when to use a revocable or irrevocable trust is an important part of creating an effective estate plan. High-net-worth individuals concerned about hefty estate taxes might benefit from setting up an irrevocable trust. In most cases, the assets held in these types of trusts are not subject to the typical estate taxes. Irrevocable trusts can help you insulate and preserve your wealth to ensure it continues to grow and provides for your family.
In contrast, revocable trusts can be used to set aside assets while you are alive, with the option to make amendments later on. You can transfer your property to a revocable trust so that it is already in the trust when you pass away rather than having the trust be created by your will.
Batson Nolan PLC: Tennessee Trust Attorneys
Creating an estate plan is imperative to preserve your assets and ensure that your property is distributed the way you want when you pass away. But probate can be a lengthy and costly process, taking up your loved one’s valuable time and depleting your estate’s resources. By creating a revocable or irrevocable trust, you can help your loved ones avoid the probate process and potentially preserve more property for them by reducing the estate’s tax bill.
The team at Batson Nolan PLC understands that creating an estate plan is a sensitive matter. We strive to create a comfortable environment to help our clients develop an estate plan that suits their unique situation. Contact our team today to set up a consultation to start your estate planning journey.