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Revocable vs. Irrevocable trust: What’s the difference?

On Behalf of | Dec 21, 2023 | Estate Planning |

We all want to leave a little something behind for the people we love when we pass on. Besides a will, one of the estate planning tools that you can use to designate inheritance for your loved ones is a trust. This estate planning tool allows you to allocate to another person or entity (known as a trustee) the obligation to hold and manage specific property on behalf of the designated beneficiaries. 

A trust can either be revocable or irrevocable. Understanding how each type of trust works can help you make an informed decision while planning your estate. 

How revocable trusts work

A revocable trust can be amended. This means that you can change certain components of your revocable trust based on the shifting estate planning needs. These amendments may include adding or removing assets and beneficiaries or redistributing the assets in a particular manner. You can also dissolve the trust at any point as long as you have the mental capacity to do so. A revocable trust makes sense when:

  • You want the flexibility to amend the trust to suit your estate planning goals.
  • You want to avoid disruptions in managing your investments when you pass on.
  • You want to protect your estate from probate.

A revocable trust comes with certain limitations too. For instance, it may not protect your estate from creditors when you die. 

How irrevocable trusts work

An irrevocable trust, on the other hand, cannot be amended or dissolved upon creation without involving the court. In other words, once set up, you will lose control over the assets held in this trust.

An irrevocable trust is ideal when you want to protect your estate from estate taxes and creditors. 

Done right, a trust can offer peace of mind knowing that your wishes will be honored when you are no longer around. However, it all begins by finding the right trust for your estate planning needs.