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What is the difference between revocable and irrevocable trusts?

| Dec 6, 2019 | Estate Planning

When considering the best options for your estate plan, there are many types of trust funds to contemplate, and you don’t have to be ultra-wealthy to benefit.

A “living” trust is one that is set up by a grantor – the person who created and funds it – while he or she is still alive. All living trusts can be revocable or irrevocable.

Revocable living trusts

This type of trust is the most flexible and can be altered at any time, and has the following pros and cons:

  • You are considered the owner of all the assets used to fund the trust
  • You can add or remove beneficiaries
  • You can revoke or end the trust if it no longer serves your purposes
  • Allows you to plan for your care in case of mental disability
  • All assets avoid probate, and the trust protects the privacy of your estate
  • All assets in the trust are considered your personal property for tax and creditor purposes
  • Provides no protection from creditors taking legal action against you
  • The assets count as your property for Medicaid planning purposes
  • The trust is subject to potential state and federal estate taxes

Irrevocable living trusts

The most significant difference is that the grantor can’t change an irrevocable trust after the agreement is signed, and the trust is formed and funded. Other distinctions include:

  • The trust is considered the owner of the assets funding it, not you
  • You cannot oversee the assets, and you must appoint a third-party to manage the trust
  • The assets are not your property, so there are no tax liabilities associated with them
  • The assets do not count against you for Medicaid planning purposes
  • The assets avoid probate when you die and remain private
  • Assets are not subject to estate taxes
  • The trust can be modified in limited circumstances when specific instructions are included for trustees or beneficiaries

Trusts help you give more to future generations

While many people believe trusts are vehicles only for those with a lot of money, they also allow middle-class people to extend their financial reach long after they pass away. An experienced estate planning attorney here in Colorado can help you determine whether a revocable or irrevocable trust can be a valuable resource for protecting your family’s financial future.