Full question:
Define 'Revocable Trust' and 'Irrevocable Trust'; what are the advantages and disadvantages of each The question is applicable to the Delaware address. My mailing address is 2514 Little Kate Road, Park City, Utah 84060
- Category: Trusts
- Date:
- State: Delaware
Answer:
A trust is an entity that holds assets for the benefit of a third party, known as the beneficiary. A living trust is a valuable tool for managing property during your lifetime and after death. As the grantor, you can also be the trustee, allowing you to transfer legal ownership of your property to the trust. This can help avoid estate taxes upon your death, but it does not eliminate your current income tax obligations.
Trusts can be revocable or irrevocable. A revocable trust can be changed or canceled at any time, while an irrevocable trust cannot be modified or revoked once established. A revocable living trust does not trigger gift tax consequences when set up, whereas an irrevocable trust may offer tax benefits.
Advantages of a revocable trust include:
- Avoiding probate for the property
- Eliminating legal fees and expenses associated with probate
- Providing property management and disbursement
- Ensuring uninterrupted income and access to principal for beneficiaries
- Maintaining privacy, as it does not go through probate
- Reducing time delays in settling the estate
The key difference is control: with a revocable trust, the grantor retains control and can amend it. In contrast, an irrevocable trust means the grantor gives up all control and interest in the trust assets. Once established, the grantor cannot change or revoke it without the beneficiary's consent.
Benefits of an irrevocable trust include potential tax advantages, as assets in the trust may not be subject to estate taxes, and creditors may not reach these assets since they are no longer owned by the grantor. Additionally, it can be structured to avoid capital gains taxes. However, the grantor loses control over the trust property.
In summary, a revocable trust offers flexibility and control, while an irrevocable trust provides tax benefits and protection from creditors, but at the cost of relinquishing control.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.