Are you ready to create an estate plan that utilizes a trust? If so, you will need to decide if you want to use a revocable or irrevocable trust. Here are a few key things to know about both types of trusts.

Revocable Trusts

Revocable trusts are also referred to as living trusts, and they are the type of trust that can be modified at any time by the person that created it. Many people use a revocable trust because of the flexibility that it offers over the years to make changes to your estate plan.

A huge benefit of a revocable trust is that it allows your heirs to avoid the probate process after you pass away. All your assets in the trust will immediately be passed on to friends and family, which can be a big motivating factor to set up a trust. A revocable trust will also offer you privacy since the documents regarding the trust are not made part of public records like a last will and testament. 

When it comes to the downsides of a revocable trust, know that it is more expensive to create than other estate planning methods. The process to manage and fund a revocable trust can also be quite time-consuming. There is also not any asset protection for the assets in a revocable trust, which means those assets can be taken away due to debts or lawsuits.

Irrevocable Trust

The key difference with an irrevocable trust is that the person that creates the trust cannot modify it later on. The grantor of the trust gives up control of all items once they are transferred to the trust, which actually provides a few advantages that you do not get with a revocable trust. 

An irrevocable trust provides you with asset protection. Those assets are going to be safe from debtors and lawsuits, so they will not be taken away from your heirs because the assets technically no longer belong to you anymore. There are also some tax-saving benefits of an irrevocable trust since you can reduce estate taxes by transferring items from the estate to the trust. 

However, you need to be aware of the tax implications of transferring items to an irrevocable trust. Capital gains and gift taxes can apply to items that fund the irrevocable trust, so you must do some careful planning to prevent that from happening.

To learn more, contact an estate planning legal service such as Cobb Law Group, LP.