A trust is a separate legal arrangement that allows an individual or entity, known as the trustee, to hold assets on behalf of another party, referred to as the beneficiary. Trusts are designed to manage and safeguard assets while helping ensure their distribution according to specific instructions.
Two primary types that often come into consideration are revocable trusts and non-revocable trusts. Keep it here to discover what distinguishes these two types of trusts.
The primary distinction
A revocable trust, also known as a living trust or inter-vivos trust, offers individuals greater flexibility and control over their assets. As the name suggests, this type of trust can be modified, amended or even revoked entirely during the grantor’s lifetime.
While revocable trusts offer flexibility, non-revocable trusts, also known as irrevocable trusts, serve different purposes. Once established, non-revocable trusts are generally irrevocable, meaning they cannot be altered or revoked without the beneficiaries’ consent.
How to choose between the two
One of the key benefits of a revocable trust is that the grantor can maintain full control over their assets. They can act as both the grantor and the trustee, managing and administering the trust as they see fit.
This flexibility allows them to:
- Add or remove assets from the trust
- Modify its terms
- Dissolve the trust altogether if desired
The grantor also has the power to designate new beneficiaries or change the distribution instructions, providing a high degree of control and adaptability.
On the other hand, the primary advantage of a non-revocable trust is its effectiveness in protecting assets from potential creditors. When you transfer assets into an irrevocable trust, they are no longer part of the estate.
Understanding the differences between revocable and non-revocable trusts is vital for effective estate planning and asset management. By carefully considering individual circumstances and seeking professional guidance, individuals can establish the most appropriate trust structure to help protect and preserve their assets for future generations.
