Are you looking for guidance on how to establish either a revocable or an irrevocable trust? Trusts are often a very common part of an estate plan. However, determining which type of trust is best for you depends on your goals for the assets that will be placed into the trust. Understanding the differences between a revocable vs irrevocable trust can be confusing. Our experienced estate planning attorneys at Johnson Law Group can help. Contact our legal team today at (720) 744-3513 for a free consultation.
What Is a Trust?
A trust is a legal entity established by someone to manage their assets. Trusts are set up while someone is alive so that their wishes about how their assets are used can be honored. Once the assets are placed into a trust the trust will name a trustee who will manage the trust assets. The trustee is responsible for investing the assets and distributing them upon the death of the owner of the trust after they pass away. In the state of Colorado, trusts are covered under Title 15 of the 2018 Colorado Revised Statutes.
What Is a Revocable Trust?
A revocable trust (often also called a living trust) is a trust where the terms can be changed at any time. Items that can be changed include:
- Beneficiaries can be either added or removed.
- The amount to be distributed to beneficiaries upon the death of the owner can be adjusted.
- Changes can be made to how assets are managed within the trust.
One downside of a revocable vs irrevocable trust is that the assets in a revocable trust can be reached by creditors if payment is needed on a debt. In addition, when the owner of a revocable trust dies the assets remaining in the trust are subject to state and federal taxes, and the trust becomes an irrevocable trust. Additional information on revocable trusts in Colorado can be found under Colorado Revised Statute § 15-5-602 (2018).
What Is an Irrevocable Trust?
Unlike a revocable trust, an irrevocable trust can only be changed with the consent of the beneficiaries of that trust. The biggest difference between a revocable and irrevocable trust is that the owner of an irrevocable trust essentially gives up all rights to ownership of the assets in the trust once the trust is established.
One benefit to having an irrevocable trust is related to tax obligations. Irrevocable trusts remove assets from the estate of the owner, thereby removing any potential liability to pay estate tax after the death of the owner.
Establishing an irrevocable trust can be difficult and often requires the help of an experienced attorney. Our estate planning attorneys at Johnson Law Group can recommend whether an irrevocable trust is best for you and your estate and would be able to help you establish one if needed.
Differences Between a Revocable vs. Irrevocable Trust
There are a variety of reasons why you may choose one trust over another. Each one does have specific benefits, which you may want to consider as you are building out your estate plan.
The benefits of a revocable trust include:
- Inclusion of assets that are not allowed in an irrevocable trust: You may include accounts like 401(k)s and IRAs in a revocable trust. You are not allowed to include these in an irrevocable trust.
- The wishes of the owner at any given time: The owner may change their desires and implement them at any point while the trust is established, making the revocable trust very desirable if you know that you may change your mind in the future.
The drawbacks of a revocable trust include:
- No tax benefits to putting assets into the trust. All assets are subject to taxes, unlike in an irrevocable trust.
- No creditor protection: As we mentioned above, creditors can pull assets from a revocable trust to fulfill debts.
Similarly, irrevocable trusts have benefits and drawbacks that may be helpful to you and your estate in the decision-making process.
The benefits of an irrevocable trust include:
- Protection from taxes: Assets placed into an irrevocable trust are shielded from estate taxes when an owner dies. If passed on through generations this could lead to significant savings over time.
- Creditor protection: Unlike revocable trusts, irrevocable trusts do protect assets against creditors. Creditors are unable to reach assets in an irrevocable trust as they are legally not owned by the owner after the trust has been established.
The drawbacks of an irrevocable trust include:
- No ability to change the trust: If you change your mind after the establishment of the trust there is no way to change anything related to the trust. For some people, this inability to change may be a dealbreaker.
- Giving up ownership of assets and relying on a trustee: If you are a beneficiary of your trust while you are alive then you are relying on the trustee to access your assets. This lack of control over one’s assets is not as desirable for some.
Choosing The Right Trust for You
Our experienced legal team can help determine which trust is best for you based on your estate planning goals and needs. If you are simply trying to prepare for potential incapacitation and/or the inability to make decisions on your behalf, then a revocable trust may be sufficient. If protection from creditors, as well as tax shielding is important to you then an irrevocable trust may be a better fit. Either way, our team can work with you on your objectives, goals, and concerns to find the right fit for you.
Contact An Experienced Estate Planning Attorney Today
Our experienced estate planning attorneys at Johnson Law Group have helped people establish trusts and create estate plans and are prepared to work with you to find a solution that fits your needs and desires related to your assets. If you still have questions regarding the difference between a revocable vs irrevocable trust and the effect it may have on your estate, contact us today at (720) 744-3513 for a free consultation.
The post Revocable vs. Irrevocable Trust appeared first on Best Family Law Attorney in Colorado - Johnsonlgroup.
