A trust is a legal entity that you set up to manage some or all of your assets. You can fund your trust while you’re alive and appoint a trustee to oversee it. After your death, the trustee distributes the assets following your guidelines. Also, some trusts won’t be funded until post-death. Revocable living trusts become irrevocable either at the death of the first spouse or the second spouse, depending upon how they may be written.
What Are Irrevocable Trusts?
A trust that can’t be amended, revoked, or modified after being created is known as an irrevocable trust. This type of trust doesn’t go through probate. Probate refers to the legal process that a conventional Will goes through to transfer the ownership of a deceased person’s assets.
When you place assets in an irrevocable trust, you approve your property to move to beneficiaries of your choice at the time of your choice. You can even transfer your assets to the beneficiary a few weeks, months, or years after your death or even while you’re alive. Irrevocable trusts are private, not public, and therefore offer the privacy that many people crave in this transparent world that we find ourselves in..
What is a Revocable Trust?
Unlike an irrevocable trust, a revocable trust can typically be dissolved, amended or revokedat any time, so long as the person who established the trust, known as the Trustor, has the capacity to do so. The Trustor of a revocable living trust typically has full access to the funds during their lifetime
Similar to an irrevocable trust, a revocable trust also avoids probateRevocable Living Trusts are typically used by people who want more privacy, who don’t want the delays of the court system post death for their beneficiaries, who may want or need some potential tax planning strategies, and for people who may own business interests or scattered real estate, to name a few reasons. Inside of the revocable trust, you may have a sub-trust or pop up trust that springs to life and becomes irrevocable upon the Trustor’s death, for example.
One of the most significant advantages of an irrevocable trust is that it may offer protection from some creditors. This is because once you’ve transferred the ownership into an irrevocable trust, you can’t take it back, so legally it’s not yours anymore. However, there are clawback provisions and fraudulent transfer protections for creditors, etc., so you need to discuss with your estate planning attorney. For example, a court might not allow assets inside of an irrevocable trust to be protected from certain creditors. Oftentimes people think they want an irrevocable trust, but when they realize what it is, they realize they would prefer a revocable trust.
Irrevocable trusts are often used for creditor protection, estate tax reduction strategies, gifting strategies, etc. Sometimes they’re used in collaboration with life insurance and those are known as ILIT’s (Irrevocable Life Insurance Trusts).
Setting up any type of trust could be a complicated affair if you don’t have the right help. If you’re based in Austin,Houston, or San Antonio, Mike Massey Law will make the process easy for you! Get in touch for our estate planning services.