Key Differences in Trusts You Need to Know
As trusted trust attorneys in New Jersey, one of the questions that we commonly receive revolves around the unique differences between revocable trusts and irrevocable trusts. The next question that we usually receive revolves around which one is best for a particular estate planning. The reality is that the answer to these questions are important but complex.
Before you begin planning your estate, it’s imperative that you know about the main differences between revocable and irrevocable trusts. Here is what you need to know:
Revocable Trusts and Their Benefits
A revocable trust provides you with more flexibility when it comes to how you utilize the trust. For example, with a revocable trust, you can make changes to it any time as long as you are alive and of sound mind. This ensures that you can maintain control over the assets of the trust. When you pass away, a revocable trust automatically converts into an irrevocable trust meaning that no one can make any changes to the terms of the trust.
There are also many benefits of having a revocable trust:
- Avoiding probate -- Utilizing a revocable trust can mean that you can save your family a lot of time and energy by avoiding the probate process. Probate can be a confusing and complex process which many people would like to avoid as much as possible.
- More control over your assets -- You have the option to modify your living trust at any time. This ultimately means that you can include/remove assets from the trust and update/remove beneficiaries.
- Continuous management -- Typically, the grantor (or the creator) of the trust also serves as trustee or co-trustee of this document. This helps you to maintain control over what is placed in the trust during your lifetime. However, if you were to become sick and incapacitated, your co-trustee or successor trustee can still manage the trust for you on your behalf during your lifetime.
Irrevocable Trusts and Their Benefits
An irrevocable trust is more complex in comparison to its revocable counterpart. Once you establish and fund an irrevocable trust with any type of asset, this transaction is irreversible. Exceptions are only allowed for certain circumstances, and if you do decide to make any changes, you normally have to receive approval from all beneficiaries.
Listed below are the benefits that an irrevocable trust offers:
- Estate tax reduction -- Any assets that you place in an irrevocable trust are not considered taxable since they don’t add anything to the value of your estate. Financially speaking, an irrevocable trust can prove to be incredibly helpful if the value of your estate is worth multiple millions of dollars.
- Government benefits -- Your wealth can work against you when it comes to qualifying for government benefits, such as Medicaid. When you establish an irrevocable trust, it allows you to receive government benefits without having to dwindle your legacy.
The Importance of Estate Planning
It’s important to remember that having a trust is just one part of your estate plan. For example, during the course of your life it’s possible that you may overlook retitling an asset in the name of the trust. This is one of the reasons why our estate planning attorneys in New Jersey strongly recommend that you establish a comprehensive estate plan which may include a Pour Over Will. A pour over will would account for any assets that were left outside of the trust when you pass away. Upon your death, these assets would pass into (or pour over) into your trust thereby removing them for your residuary estate.
Related post: 4 Reasons Why You Need to Periodically Review Your Estate Plan
Determining Which Type of Trust Is Right for You
Revocable and irrevocable trusts serve multiple purposes: they enable you to preserve your assets and also plan for a future. Ultimately, when choosing between revocable and irrevocable trusts, there are several factor that you need to consider which is why you should try to undertake this challenge without the expertise of an estate planning attorney in New Jersey.
Do you need assistance determining which type of trust is best for you and your family? Schedule an in-person consultation today with one of the legal experts here at BMC Estate Planning. We can help you establish a plan that will allow you to leave behind a memorable legacy.
Getting in touch
Borenstein, McConnell & Calpin, P.C. is a Wills & Estate Planning law firm serving Central and Northern New Jersey, as well as New York City. We strive not only to give you a great client experience, but to become your trusted adviser for life. To reach Alec, please send an email to email@example.com.
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