The Irrevocable Living Trust Defined
Living trusts are popular estate planning tools. There are two types of living trusts and one can afford you with maximum control over your assets. However, there are circumstances where one can be a better option than the other. In this article, we will take a deep dive into irrevocable living trusts and how they can work best in your specific circumstances.
What is a Living Trust?
A living trust is a trust that a grantor creates while he or she is still alive. It is created with the purpose of holding properties during a grantor’s lifetime. The properties are then distributed when the grantor passes away. It is different from a testamentary trust which is not created until the grantor’s death. The details of the testamentary trust may be included in the will, but this does not initiate the trust. Instead, the testamentary trust is officially established upon the grantor’s death. There are two versions of living trusts:
- Revocable trust – A type of trust that you can amend or cancel at any time. It provides the grantor with substantive control over the assets although the ownership has already been transferred to the trust.
- Irrevocable trust – A type of trust that cannot be changed or amended once it is set up. By executing an irrevocable trust, the grantor has relinquished control over the assets to the trust.
Differences Between a Revocable and Irrevocable Trust
To better understand the differences between a revocable vs irrevocable trust, it would be helpful to look at the different aspects of executing a trust. This lets you better decide which one is most suitable to your goals. Here are key differences between the two types of living trusts:
|Aspect||Revocable Trust||Irrevocable Trust|
|Changing the trust||Yes, there is language in the trust that states how the trust can be amended or revoked.||No, the trust cannot be changed, altered, or canceled once it has been signed and notarized.|
|Ownership of trust assets||Since the trust can be changed or revoked any time, the ownership may also change as the grantor retains power over the assets.||The trust becomes the owner of the properties funded into the trust and the grantor relinquishes all control over the assets.|
|Asset protection||Assets placed in a revocable trust are not protected from the grantor’s creditors since the grantor still retains control over the liable asset.||Assets in an irrevocable trust are protected from creditors because assets are under the ownership of the trust and not the grantor anymore.|
|Federal estate taxes||For large estates with a value higher than what the exemption allows, a revocable trust cannot be used to avoid paying the estate tax.||Since the trust owns the property, any asset that is transferred into the asset can be deducted from the total value of the estate, helping keep the value below the exemption threshold.|
Advantages of an Irrevocable Living Trust
Despite its rigidity, an irrevocable living trust still provides some benefits. Some of the many reasons why this type of trust remains popular is because of its ability to reduce taxes and protect the assets from liabilities. Here are more advantages of revocable trust:
- It allows the grantor to minimize estate taxes by moving properties to an irrevocable trust which renders them non-taxable.
- Properties in an irrevocable trust are protected from creditors and legal claims since assets are no longer under the grantor’s ownership.
- Seniors who wish to qualify for Medicaid benefits can do so by getting rid of assets through transfer to an irrevocable trust.
- Some irrevocable trusts come with “spendthrift” clauses that protect the assets from the beneficiaries’ creditors.
Types of Irrevocable Trusts
Irrevocable trusts can either be a living trust or testamentary trust. Testamentary trusts are irrevocable in nature. Properties and assets in a testamentary trust must be included in a will, and therefore, will be required to go through probate court. Some examples of an irrevocable living trust are as follows:
- Irrevocable life insurance trusts
- All types of lifetime gifting trusts such as grantor-retained annuity trust (GRAT), spousal lifetime access trust (SLAT), and qualified personal residence trust (QPRT)
- Charitable trusts
Get a Revocable Living Trust in Minutes with DoNotPay, Your Robot Lawyer
Hiring a legal expert to draft your living trust can cost you thousands of dollars. A single living trust can cost around $1,000 to $2,000, while joint living trusts cost around $8,000. The prohibitively expensive lawyer fees make most people resort to online living trust forms. The cheap prices of around $500 takes a toll on the document’s legal accuracy. That is where DoNotPay can help. Our robot lawyer has been helping users to draft living trusts without the expensive fees. All you need to do is:
- Log-in to DoNotPay and go to the Revocable Living Trust product
- Tell us the state in which you reside
- Assign your beneficiaries and trustees
- Decide what properties and assets will be under the trust
- Tell us where the trust will be notarized
How simple was that? You’ll get your living trust created in minutes with DoNotPay! All you need to do is get it notarized.
We can help you draft a revocable living trust that is recognized in any state such as:
|Washington State||New Jersey||Louisiana|
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