A trust is a fiduciary tool that provides additional options during estate planning. It enables a grantor to deposit anything of value into the trust for safekeeping.
When creating a trust, you must decide if you want to lock away those assets permanently or have access to them again. Discover the fundamental difference in trusts that you can modify and those you cannot.
You cannot change an irrevocable trust
Choosing to place your assets in an irrevocable trust permanently transfers them out of your name. You cannot modify or change the terms of this trust once created. Choosing this route usually means that there is something you want to protect. If you own a business, for instance, and find yourself facing a lawsuit, anything you have in the irrevocable trust stays safe and is not subject to liens or seizing. The downside is that those assets are outside of your reach, even if you wind up needing them. However, this shelter provides the beneficiaries of your trust with guaranteed money regardless of your financial situation.
You can modify or terminate a revocable trust
A revocable trust is a more popular estate planning tool. This vehicle allows a trustor to add and remove items from a trust account during his or her lifetime. The benefit is you may tap into these funds should you find yourself needing a bailout. The drawback is that any asset in this account is subject to taking during a lawsuit. If you do not anticipate this kind of action, then a revocable trust may help your beneficiaries inherit faster after your death since those named in a trust get their money outside the probate process.
Understanding the differences between a revocable and irrevocable trust may help you make a more informed choice when drafting your estate plan.