If you have researched estate planning, you may have heard about living trusts and irrevocable trusts. What is the difference, and which is better? Learn all about living and irrevocable trusts in this article, then our San Fernando Valley living trust attorneys can answer any estate planning and trust questions you have.
What Is A Trust?
A common estate planning tool is a trust, which transfers assets from your name into that of a legal entity. The purpose of the trust is generally to hold, safeguard, and distribute those transferred assets to your beneficiaries according to your wishes and goals.
While many think that trusts are only needed by the wealthy, millions of families could benefit by having a trust as part of their estate plan. The key is to understand which trust is better for your situation. There are two kinds of trust: revocable (living) and irrevocable. As the names suggest, the trustor can change a revocable or living trust. But in an irrevocable trust, the trustor cannot make changes without the beneficiaries’ permission.
Living Trust Overview
In a living trust, assets are put into a written trust for your benefit while you are still alive. Then, the assets are transferred to the beneficiaries that you designate in your trust when you die. This type of trust may also be called a revocable or family trust. Revocable means the trust’s terms can be changed while the trustor is alive. A living trust can be changed or revoked anytime during the trustor’s lifetime.
Living trusts are often part of comprehensive estate plans and are popular for avoiding probate.
Irrevocable Trust Overview
An irrevocable trust is one where the trustor cannot make a change to the assets in the trust unless the beneficiaries consent. There are two primary reasons that some individuals establish an irrevocable trust:
- Saving on taxes: when a trustor makes an irrevocable trust, assets are not in their name. This means they are not part of the taxable estate. You may need to complete a gift tax return depending on the transfer value.
- Protecting assets: When your assets are placed into the irrevocable trust, you no longer have a connection to them because they are not in your name. Also, as the trustor, you do not control the assets anymore. The trustee is in control, so if you get sued, a creditor cannot make the trustor take assets out to pay an outstanding debt.
Why Would You Want A Living Trust?
There are several unique advantages to living trusts that make them popular. They are:
- Avoid probate: If the trust is properly funded, meaning the assets are in the trust’s name, the estate will not go to probate.
- Customized estate planning: The living trust lets you establish a clear path for distributing assets how you wish.
- More privacy: Taking assets out of your name and putting them into a trust usually gives you more privacy. Remember, probate records are open to the public.
- Changeable: You can change or revoke a living trust when you like, giving you more control.
- Incapacitation: If you become incapacitated, you can name a person to step in when you are mentally or physically unable to manage your affairs.
On the other hand, a living trust does not protect your assets because the trustor still controls the assets. So, they could be taken out to pay a creditor. Also, the tax benefits are less advantageous than those with an irrevocable trust.
Why Would You Want An Irrevocable Trust?
There also are things to like about irrevocable trusts. They include:
- Avoid probate: If the irrevocable trust assets are in the trust’s name, they can stay out of probate.
- Estate planning flexibility: Assets can be distributed as you want.
- Reduce taxes: This trust is a robust tool to minimize taxes.
- Privacy: An irrevocable trust ensures privacy. Probate is in the public record.
However, without the beneficiaries’ consent, you cannot change an irrevocable trust once it is set up. In some cases, you may need to file a motion in court. You also cannot access the assets you put in the irrevocable trust, which could cause problems getting loans or refinancing.
Next, you are not the trustee, so you have little control once the assets are in the trust. Lastly, irrevocable trusts are expensive to establish and require annual upkeep costs for tax returns and bookkeeping.
Which Trust Is Best?
The best way to know which trust is best for your situation is to review the matter with your estate planning attorney. Working with your attorney, who understands your trust options and your financial and tax situation, will help you achieve your estate planning goals.
Also, it should be noted that irrevocable trusts are often the choice of high-net-worth individuals with estate tax concerns, and those with possible creditor issues down the road. However, for many people, the tax advantages of an irrevocable trust are not as crucial because of the size of the estate. A living trust may be sufficient to address many estate planning needs for many people. You should always review your estate planning and financial goals with a licensed attorney to fully understand your trust options.
Contact Our San Fernando Valley Living Trust Attorneys
Our San Fernando Valley living trust attorneys at Ourfalian & Ourfalian have years of experience with estate planning, drafting wills, and setting up trusts. They can help with your estate planning and setting up a living trust, so call (818) 550-7777.