In one of my previous posts, I described the benefits of a Revocable Living
Trust, and recently I realized that many people might not know how this
differs from an Irrevocable Trust. So this naturally brought up the question:
What's the difference between a Revocable and an Irrevocable Living Trust?
This is a fantastic question, because the differences are important, with
each having their own advantages and disadvantages. Also, it's very
important to note that neither one is "One Size Fits All" (what's
best for you and your situation can be more easily figured out by meeting
with an Estate Planning Attorney).
Basically, a Revocable Living Trust is a trust that you put your assets
into, while retaining control over them. In the process of creating a
Revocable Living Trust, you set up a successor trustee to take over when
you become disabled or die so as to ensure care for you and your family
are carried out the way you want. One great advantage of a Revocable Living
Trust is being able to avoid probate because the money is no longer in
your name i.e. the money is no longer part of your estate. The downside
is that you still must pay taxes on your money and you are at risk of
An Irrevocable Living Trust is different because you no longer have control
of the assets you put into the trust. The good thing about doing this
(assuming it is done correctly, the Trust is drafted properly, and all
subsequent administrative formalities are followed) is you may not have
to pay income taxes on the money that grows in trust (although you may
choose to with certain strategies), you have much greater protection against
lawsuits, and the assets placed in the trust are not subject to estate
tax when you die. This is also good because you may be able to use this
to increase the size of your estate and provide income tax-free distributions
to the ones you love when you pass away.
Obviously, those are the basic differences, and reading this post alone
shouldn't be the deciding factor for you choosing between these two
options. However, I would be more than happy to discuss with you what's
best for you and your situation, so just contact us at (203) 951-6975!