There are many different types of trusts, but they all fall into two basic categories: revocable and irrevocable.
What’s the difference?
The terms of a revocable trust can be changed and even revoked at any time. You can continue to maintain complete control over the assets in the trust and also continue to benefit from any income generated by those assets. There are no tax advantages, however, because the assets are still considered part of your estate. A revocable trust turns into an irrevocable trust upon your death.
With a irrevocable trust, there’s basically no turning back. Once fund the trust, it can only be cancelled or changed with the beneficiary’s consent and unlike the revocable trust, you cannot be the primary beneficary. There are tax advantages with an irrevocable trust as your limited access to the assets means that they are not seen as a part of your estate.
So, which type of trust is right for you?
That depends upon your goals. A revocable trust for example, is a great way to bypass probate and streamline the process of distributing your assets to your heirs. Most commonly known as a living trust, this type of trust affords privacy for your heirs and your estate.
An irrevocable trust on the other hand, can be used to protect your assets from creditors and lawsuits. Of course, you’ll no longer have control over those assets but if you were planning to leave them to your heirs, this might be a good option.
The best way to determine what kind of trust you need is to consult with a qualified estate planning attorney.