Revocable and Irrevocable Trusts don’t just sound different; they have diverse legal and tax implications. Below are a few fundamental distinctions to keep in mind as you prepare your Trust.
Revocable Living Trust
Sometimes called a “Revocable Trust” or “Living Trust,” this is a trust that can be changed at any time. If you change your mind about a beneficiary or fiduciary, the terms are simply modified with a trust amendment. If you one day decide to start over completely, you are able to revoke or change the entire thing using an amendment and restatement.
Something to consider: Assets you fund into the trust are still considered your own personal assets as far as creditors and taxes are concerned. If you are sued, living trusts don’t offer creditor protection. At the time of your death, all assets held in the trust will be subject to state and federal estate taxes.
Upon the death of the Trustee, a Revocable Living Trust becomes an Irrevocable Trust.
In contrast to a Revocable Living Trust, an Irrevocable Trust cannot be changed after it has been signed. Once assets are placed into an Irrevocable Trust, they no longer belong to you; they now belong to the Trust.
Irrevocable Trusts are often used to reduce estate taxes and protect assets. Because assets belong to the Trust and not the Trustee, the Trustee is protected from creditors and can’t be taxed upon death.
For more information on setting up your Trust, contact a Puritan Financial Advisor.
Puritan Financial Companies is a diversified financial services firm specializing in helping people from their peak earning years through retirement to secure their financial future. Visit Puritan Life Insurance at www.puritanlife.com. The information contained in this blog post is for informational purposes only and should not be construed as legal, tax, or investment advice.[sociable_code]