What is the Difference Between a Revocable and Irrevocable Trust?

Trusts are important estate planning tools. These legal documents allow you to transfer property into the name of the trust, which has many benefits. While there are many different types of trusts, they all fall into one of two categories: revocable and irrevocable. The type of trust you choose to establish will depend on your goals for the trust and how you want it to function. Below, our Utah estate planning lawyer explains the biggest differences between revocable and irrevocable trusts.

Control and Flexibility 

When you establish a revocable trust, you designate yourself as the trustee. During your lifetime you can change the terms of the trust, add or remove assets from it, or even dissolve the trust entirely. You also name a successor trustee who will take over management of the trust after you pass away or become incapacitated. They will then distribute the property within it according to the terms of the trust.

Unlike a revocable trust, you generally cannot change the terms of an irrevocable trust once it is created. To terminate an irrevocable trust or otherwise change its terms, you need court approval, which can be difficult to obtain. You also do not have direct control over the property within the trust.

Asset Protection

When you place property into a revocable trust, it is still legally considered yours. This means the assets are not shielded from lawsuits, creditors, or bankruptcy. On the other hand, when you place assets into an irrevocable trust, they are no longer legally yours. This means that generally speaking, they are protected from lawsuits, creditors, and Medicaid claims. However, transferring assets into an irrevocable trust when you have pending lawsuits, creditor claims, or know you are going to file bankruptcy can carry serious legal consequences, so consult with our Utah estate planning lawyer before proceeding with an irrevocable trust.

Tax Implications

Due to the fact that you still legally own assets in a revocable trust, they remain part of your taxable estate. Because of this, they cannot bypass federal estate taxes. However, beneficiaries do have a step-up in tax basis after you pass away, which minimizes any capital gains they may face if they sell the property they inherited from you.

Likewise, the property within an irrevocable trust does not technically belong to you and so, they are not part of your taxable estate. This can possibly reduce or eliminate any estate taxes your loved ones may face. Unlike revocable trusts, though, property does not generally benefit from a step-up in basis. This can cause higher capital gains for your loved ones in the future.

Our Estate Planning Lawyer in Utah Can Help Determine Which Trust is Right for You

It is not always easy to determine which type of trust is right for your situation. At AGS Law, our Utah estate planning lawyer will review your goals for the trust, help you determine which one is right for you, and execute it properly so you and your loved ones can reap the many benefits they bring. Call us now at 801-477-6144 or fill out our online form to schedule a consultation with our seasoned attorney and to learn more about how we can help with your case.

Source:

le.utah.gov/xcode/Title75/Chapter7/C75-7-P6_1800010118000101.pdf