Differences Between Revocable and Irrevocable Trust: 4 Things You Should Know

Revocable and irrevocable trusts are essential for estate planning purposes. It’s important to note, however, that they serve very different purposes and are used to accomplish differing goals. This article touches on a few of the benefits – and limitations – of each.

When you set up a revocable trust, you’ll continue to have access to the funds in the trust while you are alive. This means you’ll be able to spend money on the things you need, including long-term health care. In an irrevocable trust, the money is no longer available to you for any purpose.

Many people use a revocable trust to set up plans for contingencies. An example of such a contingency plan would be what to do if you become incapacitated. A trust allows for seamless handling of the assets of the trust, without the necessity of court intervention to determine who will make decisions. This saves time and money. It also protects your privacy and significantly reduces the potential for family squabbles about who is best able to make the decisions about the trust itself.

If you have a child who is disabled, an irrevocable trust can provide support. Money is immediately transferred to the trust, and cannot be transferred back to the trustor. A trustee makes determinations about how to handle money to further the goals of the trust, which in this case, would be for the ongoing care of your disabled child.

Many people don’t realize this, but there are ways that you can transfer assets into an irrevocable trust so that capital gains taxes  can be avoided. This alone is not a good reason to transfer funds into an irrevocable trust, however. Many people will never face capital gains taxes, and depending on the circumstances, a gift tax may still be due. An  estate planning attorney  can help you decide whether transferring assets into an irrevocable trust is a smart financial decision in these types of situations.