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What's the Difference Between a Revocable and Irrevocable Trust?

As you prepare to leave your assets to your family as part of your estate plan, one mechanism that you may see discussed is known as a trust.

There are numerous reasons why you may wish to set up a trust with the help of an attorney – though it’s important to realize that there are different types of trusts available, and that setting one up may not necessarily be beneficial for your specific needs.

There are any number of reasons why an individual may wish to set up a trust, including:

- Tax planning

- Asset protection

- Privacy

- Creating useful provisions for minors or special needs family members

Again, as you sit down with a professional to discuss the many facets of a successful estate plan, it’s important to realize that there are different types of trusts available. It’s vital to understand your options, what benefits they offer to you and your loved ones, and how each different type of trust is managed.

In general, trusts fall into two camps: revocable and irrevocable.

Revocable Trusts

Arguably the more popular option, revocable living trusts refer to trusts which can be edited, updated, or changed by the grantor at any time.

This may include updating certain provisions, changing beneficiaries, or amending the terms of the trust – all of which are common undertakings, especially as time goes on and an individual’s circumstances and personal relationships change.

Often, individuals use revocable living trusts as part of their estate plan for one of several reasons. For many people, creating a revocable trust allows for greater flexibility and ease for their family later on, as a revocable trust avoids probate. As a result, these trusts also afford a comparatively greater level of privacy to the grantor and their loved ones, since the details of the trust will not have to become a matter of public record.

Irrevocable Trusts

True to its name, an irrevocable trust is one that cannot be changed or altered after it has been signed (give or take in a few highly specific circumstances).

Typically, revocable living trusts become irrevocable upon the death of the maker of the trust; certainly, though, there are circumstances where an individual may wish to create an irrevocable trust directly.

One big example is asset protection. With a revocable trust, the grantor maintains their ownership over the named assets, making them eligible for loss to creditors or in a lawsuit. With an irrevocable trust, the grantor is no longer considered to be the owner of the assets – meaning that they cannot be reached by a creditor.

The same principle allows for irrevocable trusts to offer benefits in terms of taxes. With a revocable trust, the assets remain in your estate, making them eligible for local, state, or federal estate taxes (should they apply). Placing an item into an irrevocable trust removes the value of the assets from the estate, often sparing them from getting taxed down the line.

The bottom line is that there are numerous options out there when it comes to estate planning, and trusts are just one mechanism. Certainly, they are far from foolproof, and can involve a lot of time and cost. What’s more, they are surely not the only way to ensure that assets avoid probate, or that your family is provided for in the event of your death.

Chicago Probate Law would be happy assist you in determining the best approach for setting up your estate plan and whether or not a trust should be included in it. Don’t hesitate to drop us a line today with any questions or to set up a consultation!

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