What is the Difference Between a Revocable and Irrevocable Trust?
If you have started looking into estate planning options, you may be feeling a bit overwhelmed and unsure of where to start. Estate planning can seem complicated, as there are many possible mechanisms and trusts that can be employed. However, once you understand the basics, it is easier to determine which of these options will truly meet your needs. If you are wealthy and have a large amount of assets, a trust may be an excellent option for you. The choice between a revocable or irrevocable trust is a personal choice, based on what you are looking to get out of the trust.
Benefits of Both Revocable and Irrevocable Trusts
Both a revocable and irrevocable trust will allow you to avoid probate, which is arguably the biggest benefit of a trust. Probate is the process by which your debts are settled, the validity of your will is confirmed, and your assets are distributed. Sounds simple enough, right? In reality, probate can be a lengthy and costly process. If any beneficiaries are not happy with the will or do not believe it expresses your authentic wishes, they can challenge the will during probate, which can significantly extend the timeline. During this time, which is usually between one and two years depending on the size and complexity of the estate, your loved ones may lack access to vital assets and resources. Additionally, the legal fees and costs of probate are deducted from the estate, which can significantly deplete the assets to be distributed. Even having a professionally created will does not allow you to avoid this process. Any property and assets that are in your name at your time of death will have to go through probate. Trusts allow you to bypass probate by transferring ownership of your assets from your name to that of the trust. This means that the trust becomes the legal owner of the assets you transfer into it. Any assets not transferred into a trust will still have to go through the probate process.
Choosing Between a Revocable and Irrevocable Trust
The primary benefit of a revocable trust is its flexibility. This trust gives you the freedom to make changes to the trust and its beneficiaries at any time. For instance, if you have additional children or get a divorce, you can adjust the beneficiaries. You also have the freedom to add and use assets as you see fit. This is different from an irrevocable trust, which is more or less set in stone from the time you make it. While some changes can be made, it will require the permission of all of the beneficiaries of the trust. Why would anyone choose such an inflexible arrangement? In short, for the tax benefits. Because you do not retain control over the assets in the irrevocable trust, you are not taxed on them. You are also not taxed on revenue created from assets in the trust. For some, these benefits outweigh the loss of control.
Talk to a Florida Estate Planning Attorney
If you are considering a trust or would like assistance with estate planning, the experienced Florida estate planning attorneys at the SG Law Firm can help. Contact us today to schedule a consultation.