Advanced Estate Planning

What is the Difference Between Revocable and Irrevocable Trusts?

Have you ever heard the phrase “work smarter, not harder?” Of course, you have. We all strive to make our lives a little easier by getting something done in the most efficient way possible. What is amazing, though, is that we all so often work harder, not smarter anyway.

Sometimes “working smarter,” i.e., doing something a little more efficiently, takes a little planning, and that is where we typically stumble. In the crush of all the things we need to handle in our lives, particularly when there is massive pressure from a poor economy, we don’t have the time to do that extra planning – even though it will ultimately save time in the long run.

All of this is to say that the notion of “working smarter” can apply to your financial situation. You can continue to have a slapdash approach to your retirement, your finances, and the financial legacy you leave to your children; or you can take a short pause to properly plan your estate so that your money “works smarter.”  

One of the best ways in which you can plan properly for the future is to consider creating a trust for some, or all, of your assets. Why?  Because it allows you to figure out precisely what happens to your estate in the event an unforeseen accident occurs, and to make sure that you have established how your money will pass to your family after you pass away.  

There are two main types of trusts – revocable and irrevocable.  In this article, we will answer the question of “what is the difference between revocable and irrevocable trusts?” If, after reading this article, you want to create a trust for your own estate, then we welcome you to give us a call at Doane & Doane, PA. 

At Doane & Doane, PA, we are passionate about giving our clients the personalized legal counsel they need to appropriately take care of many major life and death decisions, such as estate planning. So, to answer your estate planning questions after you read this article, we welcome you to consider contacting us at Doane & Doane, PA for estate planning advice and services. You can contact us today at 561-656-0200 or fill out our online contact form.

Trust Basics

In case you need a refresher, a “trust” is a legal financial vehicle that a person (the grantor) can set up to manage his or her assets. You would set up a trust during your lifetime to make sure that the assets are used in a way that you desire. Once you, as the grantor, place your assets (or some portion) into the trust, a third party designated by you – called the trustee – manages the assets. 

Trusts can be used as a way to pass on your assets to beneficiaries after you pass away. The benefit of a trust over a last will and testament is that you can avoid considerable tax burdens, and the assets in the trust can go directly to your beneficiaries upon your death, avoiding the long, arduous probate process altogether.  

Now, with regard to trusts, there are two main types – revocable (also called “living trusts”) and irrevocable. Let’s talk about revocable trusts first.

A Revocable Trust – Terms Can Change

The benefit of a revocable trust is that the terms of the trust – i.e., the instructions you place on the management of the trust at create – can change at any time. With a revocable trust, you can change beneficiaries, add new beneficiaries, and alter the instructions on how the assets in the trust are managed.  

Now, having such flexibility with a trust sounds great, right? Well, as with most things, there is a catch. A revocable trust has a few disadvantages compared to an irrevocable one.  

1. No creditor shield. Given that the grantor retains control over the trust assets, that means that creditors can access the trust funds to settle debts.

2. Taxes. Assets held in a revocable trust are also subject to state and federal taxes when the grantor/creator of the trust dies.

An Irrevocable Trust – Usually Set in Stone

As the name suggests, and in contrast to revocable trusts, an irrevocable trust cannot be changed after it is created.  Also, unlike a revocable trust, the grantor/creator of the trust loses all right to ownership and, essentially, all control of the assets in the trust. Only in rare circumstances can a grantor make changes to an irrevocable trust.  

Why would you want such a strict trust, in which you basically lose control over the assets? The answer is easy – taxes.  

The assets in an irrevocable trust are removed from the grantor’s estate. Thus, those assets are no longer subject to taxes upon the grantor’s death.  

Overall, either an irrevocable or revocable trust are challenging to create. You need a qualified estate planning attorney to assist you.  

Look to Doane & Doane for Help with Your Revocable and Irrevocable Trusts

Founded in 2003 by husband and wife legal team, Randell C. Doane and Rebecca G. Doane, Doane & Doane provides legal and financial services to families, individuals, and businesses throughout Southeast Florida.

Estate planning is about much more than just giving away property. It is an act of love and kindness, with the ultimate goal of providing for the future financial security of your loved one. At Doane & Doane, our Wills and Trusts Attorneys West Palm Beach help people plan for retirement, make provisions for loved ones, figure out future child support, and minimize tax liability. Experienced wills and trusts attorneys know which tools to use to get the best results for their clients. Our lawyers can help you determine which tools are best suited to your specific circumstances.

When it comes to probate matters, such as the formal administration of an estate, Florida fiduciaries seek the assistance of the attorneys at Doane & Doane, P.A. to administer and manage their trusts and estates. Notably, the founding partners of Doane & Doane are board-certified West Palm Beach Probate Attorneys. With the additional advantage of certified public accountancy in their backgrounds, they present a unique combination of skills and experience which enables them to effectively settle, administer, and manage clients’ trust and estates.

Call us at Doane & Doane, P.A. to help you if you are faced with a probate matter, or if you would like estate planning services in Florida. You can reach us at 561-656-0200. Call us today.