The ability to change your mind is at the heart of the difference between revocable and irrevocable trusts. Revocable trusts take their name from the trustee’s ability to “revoke” (which necessarily includes to change) provisions of the trust agreement after signing it. These changes could include adding or removing beneficiaries of the trust by amendment or even terminating the entire trust. You may want to change dollar amounts over time, you may want to change percentages to charity or individuals over time. Unless a successor trustee is named in the trust agreement, a revocable trust becomes irrevocable upon the death of the person or persons who formed it because only the probate court can name a new trustee for the trust.
Revocable trusts can be an important tool in estate planning. Like a will, they offer a flexible option in assigning responsibilities and dividing property after one’s death. Unlike a will, however, revocable trusts do not need to be submitted to probate and will remain private. The value and division of one’s estate will not be known and thus not become a source of public speculation or possible family conflict.
Additionally, through the appointment of a successor trustee and a disability clause, a revocable trust can be used to transfer one’s property during life if one should develop dementia or another condition that prevents management of the estate.
Irrevocable trusts, by analogy, cannot be changed after signing; there is no going back on decisions made or property assigned. Irrevocable trusts are more often used near the end of life to assign one’s property to another, thus avoiding estate taxes.
In general, the assets inside a revocable trust are includable in your estate for estate tax purposes and in general, the assets inside an irrevocable trust are not. There are very different tax consequences to the beneficiaries depending upon which trust you create.
Call our office today to discuss which trust or other financial instrument best suits your estate-planning needs.