Have you ever heard of the term legalese? It is the language unique to the legal profession that often appears in fine print. This makes it easy to ignore, hard to read and, for the uninitiated, impossible to understand. To complicate matters further, some legal terminology is unique to certain aspects of the law.
As an example, consider the terms revocable trust and irrevocable trust. Both are frequently used in the context of estate planning. Both refer to legal mechanisms for the control and distribution of your assets. Apart from that, there are also significant differences. Once you know what they are, you can make a more informed decision about which type of trust may best meet your estate planning needs.
To begin with, it is important to have a basic understanding of what trusts are and how they work. Having said that, a trust is generally defined as a financial and estate planning device used to facilitate asset management.
One of the ways to create a trust is during your lifetime to ensure your money and property are used in accordance with your wishes. In many cases, someone else called a trustee manages the trust after you fund it. This person decides how the assets are invested and who gets them when you die. Any such decisions must be made as per the instructions you left when you established the trust.
A revocable trust is unique because it provides significant flexibility. For example, you may act as the trustee even if you created the trust. You can amend a revocable trust. You may also withdraw it entirely, if you wish. Although a revocable trust is exempt from probate, it is subject to certain taxes. Furthermore, it is not shielded from creditors because you technically still own all of the assets.
In the alternative, once you create and fund an irrevocable trust you cannot change or withdraw it except under very limited circumstances. Again, except under very limited scenarios that you would want to discuss with your estate planning attorney, you cannot act as the trustee. On the other hand, an irrevocable trust also carries certain tax benefits. It also shields assets from creditors while continuing to provide for your beneficiaries.
Clearly this is a general overview, designed to give you a basic understanding of a complex topic. If you would like more information or legal advice about creating either type of trust, please contact our law firm to arrange an appointment.