A revocable or an irrevocable trust is part of estate planning. This trust is used for the management and protection of a person's assets in the event of disability, incapacitation or death.
When it comes to estate planning, understanding the difference between these two types of trusts is quite important. For example, if you create an irrevocable trust when you actually wanted to create a revocable trust, the tax and legal consequences can be quite significant. Knowing the difference is very important.
What is the purpose of a trust
Simply put, a trust is an agreement between three parties where a grantor (the trust owner) transfers ownership of certain assets into a trust. This trust is then managed for the benefit of future recipients.
- The grantor: The person or group which makes the trust.
- A trustee: The individual or entity responsible for managing the trust.
- The beneficiary: The individual or group benefitting from the trust.
Also read: Setting up a trust
The Steinbach Law Firm can prepare a Trust for you. Our fee is $500 per trust to set up the trust.
Additional documents may be needed if you want to transfer real estate to the trust.
A revocable trust, is also known as a living trust or an inter vivos trust which, if plainly put, is a trust that can be changed at anytime. This type of trust is extremely flexible.
If there are second thoughts about any provisions in the trust, those provisions may later be modified or revoked.
A Revocable Trust is an entity set up by a written document that is used to own property, including cash. In other words, to protect your assets.
The down side of a revocable trust:
Revocable trust may not provide creditor protection if you are sued. Assets that were funded into the trust may still be considered personal assets.
Where must it be filed
There is no filing requirement. This is generally considered a good thing about trusts. The names of the trustee, beneficiary, and trustor are kept private.
If the trust owns real estate, there may be a requirement to file what is referred to as a Certificate of Trust or a Memorandum of Trust, which identifies the name and address for the trustee.
The trust may need to apply for its own federal tax identification number or it may only need to use the social security number of the trustor.
What is the difference between a revocable trust and an irrevocable trust
Both revocable trust and irrevocable trust begin with an intervivos trust, or more simply put, a trust that goes into effect while you are still alive. You can then decide if the trust should be revocable, meaning you can change your mind, or an irrevocable, which basically means that what's done is done, and it cannot be changed.
What is a spendthrift trust
A spendthrift trust is a type of trust created for the benefit of an individual that is unable to control their spending or finances. This type of trust gives the trustee authority in making decisions on how the trust may be spent or how it is distributed.
Benifit of a spenthrift trust
- Creditors not be able to gain access to these funds since they are not actually in control of the beneficiary.