Conscientious Estate Planning For Oregonians

How do revocable and irrevocable trusts differ?

On Behalf of | Nov 9, 2023 | Estate Planning

Although revocable and irrevocable trusts share similarities, they serve different purposes and offer unique benefits depending on your financial and personal goals. Understanding the distinctions and applications of these trusts is crucial for anyone looking to manage their assets wisely and ensure their legacy is preserved according to their wishes.

In the simplest terms, a trust is a legal arrangement where the trustor gives the trustee the right to manage assets for the beneficiary. Both revocable and irrevocable trusts are established with this basic framework.

Flexibility and control

A revocable trust, often called a living trust can be altered, amended or wholly revoked by the trustor during their lifetime. This makes it an attractive option for those who want to keep their options open as life circumstances and relationships change. Revocable trusts become irrevocable upon the trustor’s death, locking in the provisions as they stand.

One of the main benefits of a revocable trust is the avoidance of probate This means quicker distribution to beneficiaries and less public scrutiny. However, revocable trusts don’t offer as much tax benefits or protection against creditors, as the assets in the trust are still considered part of the trustor’s estate.

Protection and tax benefits

An irrevocable trust is much like setting your decisions in stone. Once established, the terms of the trust can’t be changed, barring a few exceptions. This means the trustor relinquishes all rights and control over the assets once they transfer assets into the trust. It might sound a bit rigid, but this inflexibility has significant advantages.

An irrevocable trust’s key benefit is its level of asset protection. Since the assets no longer belong to the trustor, they are generally protected from creditors and legal judgments. This type of trust also offers potential tax advantages.

Including trusts in your estate plan enables you to care for your loved ones after your death. Understanding the various subtypes within the revocable and irrevocable umbrellas is critical so you make the right decisions for your circumstances.