When setting up a trust, you will need to decide whether it should be revocable or irrevocable. Choosing one of these two different kinds of trusts affects your involvement in the trust, its administration in general, taxes, and probate, among other things.
Revocable Versus Irrevocable
You can make changes to a revocable trust after you create it, including altering the language in the trust document or even removing property from the trust. Many revocable trusts provide that the trust creator (also called a grantor or settlor) receives distributions from the trust during his or her lifetime. After the trust creator’s death, other beneficiaries receive the distributions or the trust dissolves. A revocable trust gives the trust creator substantial control over the trust.
In contrast, the trust creator has little control over an irrevocable trust. After he or she signs the legal document, the trust language cannot be changed and property cannot be removed once it is placed in trust. The trustee maintains control over the property, with the responsibility to invest and manage it prudently. Beneficiaries receive distributions of income, dividends, or principal from the trust. While the trust creator can be one of the beneficiaries, this is less common than with a revocable trust.
Why Choose One Type of Trust Over the Other?
People who want to maintain control of assets and change their mind about trust property often prefer revocable trusts. However, assets held in a revocable trust could be considered part of your estate for probate and tax purposes. As a result, your estate might have to be probated or it might owe substantial taxes.
To attempt to keep this from happening, many people choose to relinquish control of revocable trusts on their deaths. The trusts may have language stating that they end upon death of the trust creator, or the trusts may convert to irrevocable trusts upon death.
People who want to remove assets from their estates immediately or who want trusts that begin operating after their deaths often prefer irrevocable trusts. If you maintain control over assets – even those in a trust – creditors may be able to access them. An irrevocable trust can protect against court judgments, child support assessments, or other creditor demands.
Alternatively, you may want a trust that only begins operating after you die. Various kinds of irrevocable trusts can distribute funds to relatives for many years after your death. Some people choose to “pour over” all of their assets into a trust by signing wills that give the assets to the trust. An estate planning attorney can help you choose the best method.
Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.