Setting up a trust is at times imperative and often desirable. Individuals or families with substantial assets including properties, movable assets and investments of myriad kinds should opt for trusts. A trust can not only help in better management of the assets but would also come in handy at the time of liquidating the estate or when the owner of the assets has to pen down a will to dictate the terms of inheritance for his or her heirs.
Principally, there are two types of trust, revocable and irrevocable. There are certain similarities but substantial difference between revocable and irrevocable trust. Let us explore the differences.
Revocable Trust
A revocable trust will not change the ownership of the assets. An irrevocable trust will change the ownership. If an individual or a group of individuals own one or more assets, then they would collectively switch or transfer the ownership of those assets to that of the trust. They would still have access and control over the assets but they would not be the legal owners. For instance, a home owned by an individual can be transferred to a trust and yet the individual would still be staying at the address. Any kind of sale, changes or upgrades of the property will have to be done through the trust. This difference between revocable and irrevocable trust helps people who want to segregate their assets from their personal liabilities.
A revocable trust can be modified over time. You can change the policies or the statutes that govern the operation of the trust or even the nature of the trust. An irrevocable trust as an entity cannot be modified and whatever has been bestowed upon it as the assets would remain unchanged. This is kind of a double edged sword. It helps with protection against creditors but a revocable trust offers more flexibility to the owners. Nowadays, irrevocable trusts can be modified under special circumstances as trustees or owners are incorporating clauses that make this possible. However, courts or legal entities cannot change or dictate terms to irrevocable trusts, which is a huge advantage.
Irrevocable Trust
An irrevocable trust would nullify taxes including estate taxes because the grantor is not the owner. The ownership of the property doesn’t get disputed at the untimely death of the grantor because it is an asset of the trust. Such issues exist in case of a revocable trust which is why many people opt for the alternative.
