Applying Decades Of Experience To Solve Modern Legal Issues

What Are the Differences Between Revocable and Irrevocable Trusts?

On Behalf of | Aug 15, 2022 | Estate Planning

It is never easy to think about what would happen to your family if you were no longer around. Unfortunately, avoiding the question of what will happen doesn’t make the problem go away. Sitting down to create an estate plan is one way that you can plan for the future and ensure that your wishes are respected, and your family is protected after you pass.

Establishing a trust is one way to protect your assets and pass down your property. However, determining which type of trust is right for you can be challenging. At Telpner Peterson Law Firm, LLP, we want to help you understand the differences between revocable and irrevocable trusts, so you can decide which trust meets your unique needs.

Understanding What a Trust Is

Technically, a trust is a legal entity established by the grantor, or the person who funds the trust. During the grantor’s lifetime, they can manage the assets in the trust and establish guidelines that dictate how the trust contents are distributed after their passing. Often, a third party called a trustee will be placed in charge of managing the trust or dividing the trust’s assets after the death of the grantor.

Revocable Trust

A revocable trust can be changed or modified at any time. They offer extensive flexibility to the grantor. In most cases, the grantor will remain in charge of managing the trust’s assets. As long as the grantor is of sound mind, they can add and remove beneficiaries, add or remove assets, and change how trust assets are managed or distributed.

However, this immense flexibility has a few key downsides. Revocable trusts are often managed by the grantor, meaning the grantor retains full control over all assets. These assets are therefore not protected from creditors. Another potential disadvantage to a revocable trust is that the assets in the trust are subject to state and federal estate taxes after the passing of the grantor.

Irrevocable Trust

As the name implies, once an irrevocable trust is created, it cannot be changed or manipulated. Only under rare circumstances and with legal intervention can an irrevocable trust be altered. Unlike a revocable trust, almost all irrevocable trusts are managed by a third party, not by the grantor. The grantor loses the ability to manage their assets. The designated trustee not only manages the assets in the trust but will also distribute the assets as outlined by the grantor after the grantor’s passing.

Yet, what an irrevocable trust lacks in flexibility, it makes up for in other ways. The assets in an irrevocable trust are not subject to state and federal estate taxes. In addition, the assets in the trust are also shielded from creditors and cannot be liquidated to satisfy outstanding debts.

Ready to Establish a Trust? Talk to an Experienced Estate Planning Attorney

Establishing a trust can be complicated. You want to pick the option that best suits your needs and will help ensure that your final wishes are respected. At Telpner Peterson Law Firm, LLP, our legal team can review your unique financial situation and discuss your goals for your estate. We will walk you through selecting which estate planning options best address those goals.

Contact our Council Bluffs office online today or call us at 712-309-3738 to set up a confidential legal consultation. Let us help you put a solid plan in place that protects your assets and your family.