There are a number of differences between revocable trusts and irrevocable trusts. It’s important to understand these differences before you create one. Apart from revocable and irrevocable trusts, you may also need to look into GRATS. According to NerdWallet, a GRAT, also known as a grantor retained annuity trust, takes away assets from a taxable estate. This helps to minimize taxes on gifts to heirs. Here are some differences between revocable and irrevocable trusts.
The chief difference between these two types of trusts and irrevocable trusts is the ability to modify the terms after trust formation. It’s important to understand that until an owner signs trust documents, there is no trust. During trust formation, lawyers draft trust documents that must go under review before they are signed and notarized. With revocable trusts, an individual can still alter, modify, or even fully dismantle the trust at some point. In other words, you can change your mind if you create a revocable trust.
Ownership of Property
Another difference between these two kinds of trusts is to do with the ownership of the trust. When you create an irrevocable trust, things like land, bank accounts, vehicles, and other assets are transferred into the trust. Once the assets are transferred, the trust becomes the owner of that property. In other words, whoever created the trust no longer has an ownership interest or even control over those assets. This is because once the trust formation process is complete, the trustee will not be able to change anything about it. While the same is trust for a revocable trust, the person who created the trust will continue to have an ownership or at least control over the assets. Furthermore, this person will still have the power to cancel the trust.
Protection of Assets
This is the third difference between irrevocable and revocable trusts. An irrevocable trust is far better when it comes to the protection of assets. On the other hand, with a revocable trust, someone still reserves the right to move assets around. As a result, the assets in the trust will not be protected fully from creditors of the person who created the trust.
These are some of the differences between revocable and irrevocable trusts. The fourth difference is to do with taxes. An irrevocable trust can be a good estate planning tool. This tool can be used to protect assets from federal taxes. If you need help with trust formation or understanding trust, get in touch with us today.