A trust is a good idea to ensure that ownership of your assets will go to your heirs smoothly and privately. A trust can also have some tax advantages and can protect your assets from creditors. But it depends on the trust, says Yahoo Finance, in “How to Choose Between a Revocable and Irrevocable Trust.”
Irrevocable or Revocable Trust
Think about the amount of control you need over your assets because this will dictate if you should have an irrevocable or revocable trust (provided that one of these is appropriate in your situation).
A revocable trust allows you to revoke and rewrite the trust. But an irrevocable trust does just the opposite. You—otherwise legally called the trustor, grantor, or settlor—create the irrevocable trust, then relinquish control to a trustee. You can’t change the terms without getting the approval from the beneficiaries but an independent person can (think your best friend, accountant or attorney). The rule used to be that the amount of control the grantor has over the trust equates to the benefits. The more control you have, the fewer benefits. The less control you have, the greater the potential benefits. Modern trusts, however, can be designed for you to give up apparent control but retain actual control, having your cake and eating it too.
The main reason for a revocable trust is to accept assets when you can no longer manage your own affairs. When you move assets to a revocable trust, you instruct how they should be used upon your death. This usually occurs without going through probate and usually with some level of privacy for your living heirs. When you pass, a properly set up revocable trust will become an irrevocable trust, with a trustee managing it. As a result, a revocable trust can become somewhat of a substitute for a will and will give privacy to the family.
A revocable trust is useful for setting up plans to handle your assets and income if you become incapacitated. The trust will contain a provision for the continued management of the assets without a formal court order. But you might also achieve the same planning goals by using a general durable power of attorney. Talk with an experienced estate planning attorney to be sure.
The main irrevocable trust advantages (tax advantages) are primarily for the very well-off. Those advantages can be complex. For everyone else (individuals with less than $5,500,000 and couples with less than $11,000,000), the advantages of irrevocable trusts are in addressing special circumstances, like guaranteeing for the continued support of a disabled dependent or ensuring the protection of assets from professional liability or long-trm care cost.
An irrevocable trust can protect assets from creditors, but you need to place the assets in the trust before you have credit problems. Trusts are also used as generation-skipping tools (transferring wealth to your grandchildren), protecting assets in divorce and to provide for your next of kin in a responsible way.
Reference: Yahoo Finance (January 23, 2017) “How to Choose Between a Revocable and Irrevocable Trust”