In Georgia, estate planning is part of a comprehensive financial plan, and distinct types of trusts offer estate planning benefits that satisfy diverse financial needs and preferences.
You may have heard of two common types of trusts: revocable and irrevocable. Each type has its pros and cons, and knowing the differences can help you decide which type might fit your needs.
Maintaining control
A critical difference between the revocable and irrevocable trusts used in estate planning is the grantor’s amount of control. The grantor is the individual who creates the trust. A revocable trust allows the grantor to change its assets and revoke the trust if they choose, enabling them to retain flexibility.
On the other hand, an irrevocable trust prevents the grantor from making any changes. When the individual sets up the trust, the assets change ownership, and the trust owns them instead of the grantor. Turning over ownership to the trust provides various types of benefits. However, an irrevocable trust is permanent and cannot be modified once established.
Tax differences
A revocable trust helps you avoid the cost of probate and maintains privacy. However, the trust is still taxed as part of your estate since the assets remain in your name.
Conversely, an irrevocable trust removes the assets from your estate since the trust owns them. They receive the same protection from probate while also receiving potentially significant tax advantages because an irrevocable trust is taxed as a separate entity.
Protecting your assets and beneficiaries
Another essential difference between revocable and irrevocable trusts is asset protection. Since you have given up control of the assets when transferring ownership to an irrevocable trust, in most cases, the assets have protection from lawsuits and creditors. This protection also extends to the trust’s beneficiaries.
Understanding some critical differences between revocable and irrevocable trusts can help you make more informed decisions about which will better suit your estate planning needs.