Should I Use a Revocable Living Trust or an Irrevocable Living Trust?

IL estate planning lawyer, Illinois trust attorneyAlthough many people assume that a last will and testament is the only estate planning tool that they need, a will is not always the best way to accomplish all of your estate planning goals. Other estate tools such as living trusts are often overlooked due to confusion or misunderstandings about the purpose of these tools. A trust is a legally binding agreement involving an individual or entity called a trustee who holds property for the benefit of a beneficiary. A living trust is an advantageous tool for managing your assets during your lifetime and then passing those assets to beneficiaries upon your death. If you are interested in using a living trust to manage your assets, you may question whether you should use a revocable living trust or an irrevocable living trust.

Revocable Trusts

As the name implies, a revocable trust is one that is able to be revoked or canceled. If you place assets in a revocable trust, you remain in control of those assets. You are also considered to be the owner of those assets in the eyes of the Internal Revenue Service and other governmental agencies. Because the property is yours, you can choose to remove the property from the trust and use it for other purposes at any time. A revocable living trust covers you while you are alive, in the event that you are incapacitated by illness or injury, and after you pass away. One of the greatest benefits of a revocable living trust is that it avoids probate– the public legal process during which a will is validated in court. Because you remain the owner of the property placed in a revocable trust, transferring property to a revocable trust does not affect your federal income taxes or estate income.

Irrevocable Trusts

An irrevocable trust is not able to be withdrawn. When you transfer assets to an irrevocable trust, you no longer own the assets or have control over them. The trust itself becomes the owner of the property. This means that you cannot take the assets out of the trust. Because you are not the owner of the assets in an irrevocable trust, you cannot be taxed on them. However, you can continue to gain revenue on investments from the trust. Depending on your net worth and overall estate planning goals, there may be enormous tax benefits to placing assets in an irrevocable trust. Using an irrevocable trust may also help shield your assets from any future creditors.

Contact a Wheaton Trust Lawyer

Assets placed within a revocable trust may be withdrawn at any time while assets in an irrevocable trust are no longer considered your property. There are advantages and disadvantages to both irrevocable and revocable trusts. If you want to learn more about which type of trust will best suit your unique needs, contact Stock, Carlson & Duff LLC. Call our office today at 630-665-2500 and schedule a personalized consultation with a knowledgeable DuPage County estate planning attorney.

Sources:

https://www.isba.org/sites/default/files/publications/pamphlets/Estate%20Planning.pdf
https://www.washingtonpost.com/business/2020/06/17/purposes-revocable-vs-irrevocable-trusts/
https://www.thebalance.com/living-vs-revocable-trust-3505393