Estate planning is important regardless of how young or old you are, but unfortunately 64% of citizens don’t even have a will.
Why is having an estate plan so important anyway? Because a thorough estate plan prevents hassles for your family later on! It protects them when unfortunate circumstances arise and helps them stay away from legal issues that can turn out to be quite costly.
One of the most important aspects of estate planning involves setting up a trust, which can either be revocable or irrevocable. Trusts are sophisticated tools, providing greater benefits than just a will. Death can be complicated and emotionally draining, but trusts make it easier to manage the situation.
Both these trusts are based on setting up an intervivos trust that comes into effect immediately. You’re then left to decide if this trust should be revocable or irrevocable.
Both irrevocable and revocable trusts have their own sets of pros and cons, so let’s compare them in detail. We’ll explain things in as simple a way as possible, but if you still have questions, you should consider appointing a trust attorney in San Diego, CA.
The concept of irrevocable trusts is simpler – a trust that acts exactly as the name suggests. It cannot be amended, modified or terminated after being created. So when assets have been transferred, you can’t change any of the written terms and can no more claim ownership of those assets.
Thus, when you place your property into such a trust, you cannot retrieve it again because it belongs to the trust and the trust alone; you don’t have any right to it. And that also means you have to move out if you live on the property once the trust has been executed.
If you opt for a revocable trust, you’re allowed to undo later, and can retrieve your property again, upon which the trust would be terminated. Should you become incompetent or pass away, a revocable trust may turn into an irrevocable one.
Apparently, revocable trusts seem a more preferable option. After all, you wouldn’t want to put your money where you’ll never be able to access again… but is it?
If you choose a revocable trust, you would still own the property and thus, would be responsible for maintenance as well. In such a case, there’s always a risk of losing your assets to lawsuits or creditors. Under an irrevocable trust, the assets are no longer in your hands. Independent trustees make all decisions regarding investments, and thus, protect the assets.
Moving assets into an irrevocable trust doesn’t always consider incur capital taxes. But with a revocable, they have to be paid. Similarly, no real estate taxes have to be paid under an irrevocable trust. In case of a revocable one, the assets are still yours, so you’ll be paying taxes for as long as own them.
Please note that while an irrevocable trust helps you avoid capital gains taxes, gift taxes may still have to be borne.
Assets in a revocable trust are exposed to a nursing home. In old age, people often require long term nursing care. If costs rise too high, then assets in a revocable trust may be used up. With an irrevocable trust, this cannot happen.
A revocable trust can be a better choice in some instances. Talk to a trust attorney in San Diego, CA, and they will help you decide. Generally, a revocable trust is created to avoid probate, but the same can be achieved with an irrevocable trust as well.
Still, revocable trusts are recommended when you don’t have any tax issues and want hold of your property. If you fear, you may not be able to handle your affairs later on in life, your designated trustee will manage assets on your behalf. IN fact, revocable trusts also allow you to establish written guidelines, which the trustee must carry out upon your behalf when you’re unable to do so.
So in a nutshell, if you want to eliminate or simplify the probate process, you should go with a revocable trust. If you want tax advantages, sign up for an irrevocable trust. Whatever option you choose, you’ll still be making life easier for your family members when you aren’t there for them anymore.