When it comes to planning your estate, many people have heard the term “Trust.” You may also have come across the terms “irrevocable” and “revocable” trusts. When people consider creating a Trust, they are often confused about which is a better option for them. To make the decisions for yourself, it is important to understand what these terms stand for.

Estate planning and the components that make it are nowhere near simple. The entire thing has a complex structure, especially Trusts. Instead of depending on your friends, family members, or Google to understand what it is, consulting with an estate planning attorney Monroe NC can help.

What is a Revocable Trust?

A revocable trust is one of the terms which you can change anytime you want. You can change the name of the beneficiaries, add or exclude existing names, and modify which assets are to be distributed. Since this type of trust has flexible terms, most people like to go for it. However, it has its downsides as well.

Because the owner of the trust can access it anytime they want, the assets in a revocable trust are not protected from creditors and the court. This means that if you get sued, the assets in your trusts are subject to liquefaction. Another disadvantage is that when the owner of the trust dies, the assets in it become subject to federal and state taxes.

What is an Irrevocable Trust?

In simple terms, an Irrevocable Trust is a legal document set in stone. Once you establish trust with the terms and conditions, there is no going back. Except in very rare circumstances, you cannot make any changes in this type of trust.

The main reason for the strict nature of irrevocable trusts is taxes. These trusts release the owner and the beneficiaries from tax liability, which is not the case with revocable trusts. Not only that, but you also do not have to pay taxes from the income that you generate from assets in the irrevocable trust. They are a good option but are difficult to set up. If you opt for this, it is recommended to consult with an attorney in New Jersey.

Key differences between a revocable and an irrevocable trust

1. A revocable trust can be canceled at any point in time, while an irrevocable one cannot.
2. The owner has the right to exercise control on a revocable trust while they cannot do it with an irrevocable trust.
3. In a revocable trust, the terms can be modified anytime. But, the terms of an irrevocable trust are set in stone.