Trusts often play a significant role in long-term planning. They can be essential not only in estate planning but as part of a larger, comprehensive financial strategy. Our team at NEIRG has discussed the establishment of a trust as a widely-used method to make sure that an individual’s assets are distributed effectively and in adherence to their wishes. There are numerous forms of trusts in existence, and it’s worthwhile to take a moment in comparing two major categories: revocable and irrevocable trusts.

Revocable Trusts

Revocable trusts, often known as living trusts, allow for an individual to allocate assets and create specific conditions regarding where those assets will be distributed. In a living trust, the individual is giving the power to revoke to the grantor (the person/entity funding the trust), retaining authority over assets held within the trust. The grantor designates a trustee to fulfill the conditions set forth in the trust, and the grantor also names beneficiaries to receive the asset distributions. Unlike a will, revocable trusts are documents not subjected to public viewing, providing privacy for grantors and their beneficiaries. A revocable trust also avoids the lengthy probate process that is required upon execution of a will.

This variety of trust is sometimes favored due to its flexibility; some individuals enjoy the peace of mind that comes with being able to make changes to a living trust in case of unforeseen circumstances. A grantor has the freedom to adjust conditions or to end the trust entirely.

Irrevocable trusts

In an irrevocable trust, the trustor waives control of the assets within the trust. Those assets become property of the trust upon its enactment, and the terms of the trust are administered by the trustee. If the trust produces income, those funds are also under the authority of the trust and separate from the trustor’s estate. The terms of an irrevocable trust cannot be modified or terminated following its implementation except in a few unique and extraordinary cases.

Distinctions to Consider

An irrevocable trust serves a similar purpose to a living trust in regards to protecting assets, but the key distinction to consider is how the control of assets differ. In a revocable trust, the trustor indeed has the ability to make adjustments such as adding or removing beneficiaries, taking out assets if needed, or terminating it. When establishing an irrevocable trust, the assets in the trust are no longer owned by the trustor and belongs to the trust itself. An irrevocable trust can prove useful in the event of a lawsuit, as the assets held may be protected from liability. Assets in an irrevocable trust are removed from the grantor’s estate, as they are removed from their control, and thus can have significant tax advantages. This aspect is one of the key differences between an irrevocable trust and a revocable trust.

Both of these categories of trusts hold different potential advantages as well as disadvantages, but an individual’s circumstances are what will determine which trust provides the most value. A trust in any form is an exceptionally delicate and complex document, which calls for in-depth guidance from an estate planning expert who holds the experiences and wisdom necessary to facilitate the process.

At NEIRG we recommend partnering with both an estate planning attorney as well as a financial planner to create a comprehensive plan for yourself and your family.