Trusts are an important aspect of the estate planning process. These are established in order to pass assets down to your beneficiaries without having to go through the probate process. There are several different types of trusts, but they all fall into one of two categories – irrevocable or revocable.
Knowing the differences between these two can help you to determine what trusts you should use as part of your estate plan. This also enables you to reduce the tax liability that your loved ones will face when you pass away.
Creditor protection differs with these trusts
One of the biggest differences between a revocable trust and an irrevocable trust is that the irrevocable trust offers protection from creditors. Once the trust is funded, creditors can’t make a claim for anything that’s in the trust. A revocable trust doesn’t have this type of protection because you still own and control the assets that are in the trust.
Ability to change the terms
When you establish a revocable trust, you can change the terms when you need to. This isn’t possible with an irrevocable trust unless you have permission from the beneficiaries. Many people still choose irrevocable trusts because of the protection these trusts offer.
Anyone who’s creating an estate plan should learn about how trusts can help them to get their assets to their loved ones. Understanding how these work and what protections they offer is beneficial. Be sure that you’re working with someone who can explain how you can convey your wishes and set these trusts up so that they’re legally valid.