Revocable trusts are most commonly used in estate planning to accomplish financial objectives, but there are many other types of trust and each serves a different purpose.
Trusts make it possible for the grantor (you) to specify how your estate is divided when you die. Specifically, one of the greatest benefits to a trust is that it allows beneficiaries to avoid the often drawn-out process of probate.
The following article addresses why revocable trusts are frequently preferred over other options.
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Revocable and Irrevocable Trusts
There are two basic kinds of trusts— revocable and irrevocable. As you might assume, a revocable trust allows the grantor to amend or revoke the trust whenever they choose. They retain control of its assets.
However, an irrevocable trust doesn’t allow for this same room to maneuver. Once an irrevocable trust has been created, those assets no longer owned by the grantor.
Advantages of a Revocable Trust
A revocable trust is also sometimes known as a living trust. As stated earlier, its terms can be altered. For example, a grantor remains free to remove certain beneficiaries, choose new ones, or even add stipulations determining how assets are used or managed.
Due to the built-in leeway of revocable trusts, it’s easy to see why they’re so popular. Although, there are a few disadvantages to consider.
Disadvantages of a Revocable Trust
One disadvantage to a revocable trust is that its assets aren’t protected from creditors the way they would be with an irrevocable trust. This is because the creator of a living trust retains control. For instance, if the grantor faced a lawsuit, it would be vulnerable to liquidation. Another thing to account for is that any assets held in a revocable trust are subject to estate taxes after the grantor dies.
When used knowledgeably, trusts benefit both financial and non-financial goals. For more information on using trusts in your estate plan, please contact our office at (925) 447-1250.