For more information on Revocable Living Trusts from @uwmadison, click here.
For more information on Irrevocable Living Trusts from Kiplinger, click here.
What Is A Trust?
A trust is a legal entity that allows a person to transfer assets to another person for the benefit of one or more beneficiaries. There are three parties to any trust: the grantor/settler, trustee and beneficiary(ies). A common trust owned by many is known as a living trust, which is established by a grantor while still alive. There are two types of living trusts, a revocable and an irrevocable living trust.
Revocable Living Trust
Allows the grantor to alter, amend or terminate the trust without notice. Often the grantor is the trustee of a revocable trust. A revocable living trust will become irrevocable at death. The trust avoids probate proceedings, but does not avoid estate taxes.
Irrevocable Living Trust
Can’t be altered, amended or terminated by the grantor. The transfer of property to the trust is considered a completed gift, which may subject the irrevocable trust to gift tax. However, once the assets have been transferred, they will not be included in the grantor’s gross estate for tax purposes.
According to the family estate planning guide provided by the University of Wisconsin Madison,
Advantages of A Revocable Living Trust
- Can avoid the delay and costs of probate
- Can identify/recommend an investment advisor
- Its terms are not a matter of public record
- The successor trustee can manage the settlor’s affairs in case of illness or incapacity
- Can protect capital assets for financially inexperienced or spendthrift beneficiaries
- Can provide competent business of investment management
- Can provide flexibility in protecting beneficiaries from unforeseen problems such as mental incompetence or financial misfortune
- It can make gifts to minors without the need for a court-appointed guardian of the estate
- It can withhold the transfer of assets to a beneficiary until he/she reaches a preset age set by the settlor
According to kipler.com
Advantages of An Irrevocable Living Trust
- You can minimize estate taxes: individuals who gift money every year can use these funds to purchase life insurance in an “irrevocable life insurance trust,” meaning that they won’t pay estate taxes when they die
- You can become eligible for government programs, as irrevocable trusts can shelter income and assets
- Protect your assets from creditors with asset protection trusts, which occurs when the trustee and beneficiary are unrelated. These are usually only created in states that have favorable trust laws, such as Delaware, Nevada and North Dakota