Talking with some attorneys about your end of life plans can be like trying to communicate with someone from a different planet. Latin phrases and acronyms get thrown around to impress you, or to justify their prices. And nobody seems to care whether you understand the plan you are walking out the door with or are as confused as a goat on astroturf.
At the Hegwood Law Group, things are different. We are all about plain language and transparent pricing. We go out of our way to ensure that our clients understand their estate plans, so they can be sure their final wishes are accurately reflected in the stack of documents they walk out of our office with.
One topic we end up spending a lot of time talking about is trusts. There are so many different kinds of trusts out there that we could never cover them all in a blog post, but they all fall into two broad categories that we thought it would be helpful to explain. All trusts are either revocable or irrevocable.
Revocable vs. Irrevocable
The root of both of these words is “revoke”, which you are probably aware, means to take back or recall. A revocable trust is, therefore, one that can be called back, altered, or destroyed by the person who created it. On the other hand, an irrevocable trust cannot be changed once it has been created. Each type of trust has its benefits and downsides, which are discussed more fully below.
The Benefits Of Revocable Trusts
Revocable trusts are also known as living trusts because they can be altered or revoked while you are alive. They are used to hold and pass on assets ranging from guns to vacation homes.
The benefit of putting assets into a revocable trust is that the next owner can take possession of them without going to the probate court for permission after the trust creator has died. It is, therefore, faster to pass assets via a revocable trust than a will. It also preserves your financial privacy since, unlike wills, trusts are not public documents.
While you are alive, you can alter a revocable trust by adding or removing assets from it, and you can name different trustees and beneficiaries. The price of this flexibility is that items in a revocable trust remain part of your estate and can, therefore, be taxed.
It should also be noted that all revocable trusts become irrevocable when the trust creator dies because the power to make major changes to the trust dies with them.
Irrevocable and Unchangeable
If you are eager to minimize your taxable estate or protect assets, an irrevocable trust may be a better option for you. An irrevocable trust cannot be altered after it is created. Because of this, the government no longer considers assets held in an irrevocable trust to be part of the trust creator’s estate, so it typically does not tax them.
Irrevocable trusts are commonly used to hold assets, insurance policies, funds that are to be used to take care of a minor or funds to be protected until the Grantor’s death and passes to the beneficiaries.
If you have questions about the different types of trust, or any other estate planning topic, we are here to help. Please contact us today to schedule an appointment in our Houston office.