When setting up a living trust, you will come across the option of choosing between revocable and irrevocable trusts. Each type has its own caveats and benefits, and determining which one is best-suited to your individual circumstances may seem complicated. However, once you know the key differences, it will become easy for you to pick the right one for achieving your financial goals and protecting your assets.
This type of trust is made during the grantor’s lifetime, and can be changed, modified, and even eliminated any time before their death. A revocable trust can be a third party trust where the grantor chooses another person as beneficiary, or it can be self-settled, making the grantor also the beneficiary. One of the main benefits of a revocable trust is it avoids probate after death, while also giving complete control to the grantor over the trust during the course of life.
When you should Create a Revocable Trust
A revocable trust is ideal for people who don’t have any significant assets involving tax issues. They are mostly recommended for individuals who may be at risk of mental incapacitation in the future, leading them to lose control over their own assets. For example, if you have a family history of Alzheimer’s disease, it will be wise to transfer your estate to a revocable trust. It allows you to designate a trustee who will deal with your assets after you become incapable of doing so. You can even include specific instructions for the trustee to execute your wishes.
This type of trust is the opposite of a revocable trust – once it has been established, it cannot be changed, modified, or eliminated. Irrevocable trusts offer many financial benefits, as they allow you to remove the value of your property and assets from your estate, making them non-taxable and non-existent to creditors.
When you should Create an Irrevocable Trust
One of the main reasons for creating an irrevocable trust is that it keeps your assets secured from estate taxes. Since the ownership of those assets is transferred to the trust itself, they are no longer counted as your property at the time of estate valuation. Even when the grantor dies, the property and assets held in an irrevocable are not taxed. Another benefit of making an irrevocable trust is that it keeps creditors from liquidating your assets for debt settlement. In addition, it helps you to qualify for government programs, such as Social Security Disability or Medicaid, since your assets are considered part of your estate.
You should keep in mind that once you have established an irrevocable trust, it cannot be revoked. However, being the grantor, you may retain certain powers, like changing your trustees and beneficiaries of the trust.
Consult With An Elgin Estate Planning Attorney Today
If you want to know to more about trusts and other estate planning tools, you may call the Jackson Abdalla Law Group today at (773) 550-3853. We serve clients in and around Elgin, South Elgin, St. Charles, Bartlett, Streamwood, and Carpentersville.