Age Gracefully With A Plan In Place

Revocable vs. irrevocable trusts: which one should you set up?

On Behalf of | Aug 2, 2023 | Estate Planning |

When you’ve worked your entire life and accumulated wealth, putting your affairs in order and planning for the future (both yours and the people and causes you care about) is one of the most sensible steps you can take. This is the very essence of estate planning.

One of the most important estate planning tools you can use to safeguard your interests and legacy is a trust. Broadly speaking, this is a fiduciary arrangement wherein you designate a third party known as a trustee to hold and manage specific assets on behalf of your beneficiaries.

There are two main types of trusts, revocable and irrevocable trusts. And as you can imagine, each trust has its unique features, pros and cons. As such, it is important that you understand the difference between these types of trusts in order to identify the one that best meets your specific goals for certain assets/beneficiaries.

Understanding revocable trusts

A revocable trust, also known as a living trust, is flexible. This means that you can update it (by adding or removing assets and beneficiaries) at any time as long as you are of sound mind. This type of trust automatically becomes irrevocable upon your passing (but is revocable before then) and must be governed by the trust instruments. A revocable trust is ideal if you want to avoid probate and protect your wishes while preserving your privacy. However, it will not protect your estate from creditors and lawsuits.

Understanding irrevocable trusts

An irrevocable trust, once established, cannot be changed without the court’s approval or the permission of all of the trust’s beneficiaries. In other words, once you create an irrevocable trust, you’ll surrender full control to the trustee. However, besides avoiding probate and preserving your privacy, an irrevocable trust can also protect you from creditors and lawsuits. It also comes with certain tax benefits.

Protecting your interests

The decision to set up a revocable or irrevocable trust is entirely yours to make based on your circumstances and estate planning goals. Learning more about Indiana estate planning laws can help you protect your rights and interests while setting up one or more trusts for your estate.