Differences Between Irrevocable and Revocable Trusts
|Irrevocable Trusts||Revocable Trusts|
|The trust is issued a Tax Identification Number.||The trust is not issued a Tax Identification Number.|
|The terms of the trust agreement cannot be amended after the trust agreement is executed. The trust agreement can include trust protector language, which may permit the trust protector to revise the trust agreement for tax purposes or to accommodate a beneficiary who has special needs. The trust protector may also remove and appoint trustees, but they cannot amend terms such as the identification of the beneficiaries or amount of assets to be distributed to each beneficiary.||The terms of the trust agreement, including the identification of the beneficiaries and amount of assets to be distributed to each beneficiary, can be amended after the trust agreement is executed. However, often when the grantor or first to die of the grantors passes away, the trust becomes irrevocable, so at that point, the terms can no longer be amended.|
|The assets put into the trust are no longer a part of the grantor’s estate, which makes irrevocable trusts a powerful asset protection tool.||The assets put into the trust remain a part of the grantor’s estate, so revocable trusts are not useful for asset protection.|
|The assets in the trust can be used for the benefit of the beneficiaries without the beneficiaries having to own the assets outright.||The assets put into the trust will pass directly to the named beneficiaries on the death of the grantor(s), so they may be used to pass property to the beneficiaries as a way to “avoid probate.” To completely avoid probate, all of the grantor’s otherwise probable assets would need to be transferred to the trust. For example, if one bank account is omitted, the grantor’s estate will need to be probated.|
Our office regularly assists clients with determining which type of trust will meet their goals, drafting the trust agreement, obtaining the Tax Identification Number (if needed), and providing education regarding how to properly use the trust.
If you are interested in learning more about which type of trust may be beneficial for you, please call Waldron & Schneider to schedule an appointment for a consultation with one of our experienced attorneys.
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