When it comes to estate planning, deciding between a revocable trust and an irrevocable trust can be a crucial decision. At The Law Offices of Baldacci, Sullivan & Baldacci, we believe both types have their own advantages and considerations, so it's important to understand the differences to determine which option aligns best with your goals. Below we’re sharing a few of the most important factors to consider when deciding which type of trust is right for you.
Revocable vs. Irrevocable Trusts: Which is Right for You?
Flexibility vs. Control
A revocable trust offers flexibility as the trust creator can make changes or revoke the trust altogether during their lifetime. On the other hand, an irrevocable trust provides more asset protection and estate tax benefits but lacks the flexibility of a revocable trust. Consider how much control you want to maintain over your trust assets when making your decision.
Asset Protection
Irrevocable trusts are often used for asset protection since the assets within the trust are typically shielded from creditors. If protecting your assets from potential creditors is a priority, an irrevocable trust may be the better option for you. However, keep in mind that once assets are transferred to an irrevocable trust, you no longer own or control them.
Estate Tax Planning
If reducing estate taxes is a primary goal in your estate plan, an irrevocable trust may offer tax-saving benefits. Assets placed in an irrevocable trust are generally not included in the grantor's estate for estate tax purposes, potentially lowering the overall tax liability for beneficiaries. Consider consulting with a tax professional to determine the impact of estate taxes on your trust planning.
Incapacity Planning
Both revocable and irrevocable trusts can be useful tools for incapacity planning, but they serve different purposes. A revocable trust allows the grantor to name a successor trustee to manage the trust assets in the event of incapacity, providing a seamless transition of control. An irrevocable trust can also stipulate how assets are managed in case of incapacity, but the terms of the trust are set once it's established.
Choosing between a revocable and irrevocable trust depends on your specific needs, goals, and priorities. Consulting with our experienced estate planning attorneys can help you navigate the complexities of trust planning and make an informed decision that aligns with your wishes. Both types of trusts offer unique benefits, so carefully considering these four factors can help you determine which option is right for you and your loved ones.