There are many reasons to consider including a trust in your estate plan. However, some of the benefits and drawbacks of a trust will depend on the type of trust you choose. Typically, trusts will be either revocable or irrevocable, and if you are considering including a trust in your estate plan, it can be helpful to understand how the two types of trust differ.
You can make a revocable trust, sometimes called a living trust, during your lifetime, and you can modify or eliminate the trust at any point during your lifetime. Once you die, the trust will become irrevocable because you are no longer available to alter it.
Revocable trusts allow you to take back ownership of any property you put into the trust, which can be beneficial because it allows flexibility in case something unpredictable happens later in your life. However, revocable trusts do not protect against lawsuit liability or estate taxes, and the value of assets in the trust may affect your eligibility for governmental benefits.
If you create an irrevocable trust, you cannot change or eliminate the trust without the permission of the trustee and all of the beneficiaries. The trustee is the person responsible for the trust's assets, and the beneficiaries are the ones who receive the trust's assets.
Because you are typically unable to take back property you put into an irrevocable trust, that property also cannot be taken by creditors or a judgement holder. The property that you put into your irrevocable trust is also not subject to estate tax. However, transferring ownership of property to an irrevocable trust can be daunting because the transfer is permanent in most situations.
If you are considering including a trust in your estate plan, it can be valuable to understand the difference between a revocable trust and an irrevocable trust. Although the type of trust you choose is ultimately up to you, it can be valuable to consider if a revocable trust or an irrevocable trust better fits your situation and your estate planning goals.