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Revocable and irrevocable trusts help to protect an individual’s assets and save them for specific beneficiaries. Every trust includes a grantor or creator of the trust, beneficiaries who will inherit the assets, and a trustee responsible for handling and distributing the assets to the parties.
Both revocable vs irrevocable trusts vary a lot from each other with one of differences being the ability to change the contents of the trust created earlier. The grantor can change a revocable trust; however, it is impossible to do so for an irrevocable trust. To create a strong and formidable estate plan, it is important that one knows the key differences between the trusts.
This website blog will discuss revocable trust vs irrevocable trust:
Before discussing the differences between a revocable and irrevocable trust, one must know what trust is. A trust is a legal entity or documentation that helps you transfer your assets to a trustee responsible for safeguarding your assets for your future heir after your death.
A living trust can either be a revocable or irrevocable trust. You can act as your trustee or recommend others to act as your trustee to safeguard your assets. The trustees have a fiduciary role, meaning they act in the best interests of the future heir.
A revocable trust is a living trust that helps to determine the assets you wish to present to the heir and it shall be distributed. These trusts are entirely under the grantor’s control as they are made the trustees of this trust.
The best part about revocable trusts is that they can be easily altered depending upon the individual’s choices. You can change the inheritor, the assets to be distributed, and how much or which assets should be included.
Like revocable trusts, an irrevocable trust is also a living trust that determines the value of the assets and how they are distributed to the beneficiaries. However, unlike revocable trusts, these trusts are made once and are not permitted to be changed in the future.
Well, if all the beneficiaries agree to change the contents of the trust, it can be allowed, but most of the time, it has to go through the judge, which is a lengthy and hectic process.
The main advantage of revocable trust is that they are flexible, allowing you to change the contents, as noted earlier. If you have financial issues or need to make certain changes to the contents to meet your needs, it is only possible for revocable trusts and not irrevocable trusts.
Another benefit of revocable trusts is that they offer a sense of peace, as you can change your trusts if you are financially broke or unable to manage your assets. All you need to do is ensure the trustee agrees to your requests.
Also, in the future, after your death, these trusts will help your inheritor to handle the probate processes.
The difference between revocable and irrevocable trust is that a revocable trust does not protect the individual from creditors unlike irrevocable trusts. Therefore, if you are sued, the creditors can demand a satisfactory amount from your trust assets to come to a judgment.
Another cons of the trust is that they are subject to estate taxes, which are to be paid even after your death. Any amount due above the current exemption requires one to pay taxes, burdening your beneficiaries after your death.
However, one can hire a Testamentary Trust Wills lawyer Perth to handle these troublesome issues.
The greatest advantage of irrevocable trusts is that they help protect your assets from creditors and avoid estate tax charges. These trusts handle your assets and not you as an individual making it possible for you to avoid being charged with estate taxes. Also, these trusts help you qualify for healthcare and avoid spending assets on it.
The disadvantage of irrevocable trusts is that once created, you need more power to change the assets transferred. You also cannot act as a trustee either. Hence, it is dangerous if you are unaware of why you established the trust. So, think before you create an irrevocable trust.
Hence, it is your choice as an individual to choose either of the trusts. After reading the merits and demerits of the revocable and irrevocable trusts, you can decide which is best for transferring your assets to the trustees and safeguarding them for your beneficiaries to inherit after your death. You can contact trusted and experienced Estate Planning Lawyers in Perth to help you with the trusts.