Revocable vs. Irrevocable Living Trusts in Colorado
Estate planners all across the United States use living trusts, and they have gained popularity in Colorado as well. The living trust is an estate planning device that allows you to move assets into a trust during your lifetime, allowing you to manage and distribute them as you choose. There are two types of living trusts, revocable and irrevocable.
Continue reading as we discuss the differences and when each is most beneficial.
What Revocable Living Trusts Are
A revocable living trust, sometimes simply referred to as a living trust, is a type of trust that you may create during your lifetime that can be changed or revoked at any time during your life. A revocable living trust offers flexibility and allows you to make decisions about and be in control of your assets until your death or when you are incapacitated.
Revocable Living Trusts: The Pros
Several factors make choosing a revocable living trust a solid choice. The following are some of the benefits of choosing to use a revocable living trust when planning your estate:
- They are flexible, meaning you can make changes whenever you see fit.
- You can avoid probate since assets held in a revocable living trust are not subject to probate, meaning less court involvement. Your beneficiaries can receive their inheritance much more quickly upon your death.
- You may want to consider a living trust if privacy is important to you. Wills are recorded publicly, but revocable living trusts are private documents that are not available to the public.
- Revocable living trusts are a tremendous help if you become incapacitated since they act as a means of disability planning. It can provide for a trustee to manage assets on your behalf without the court needing to intervene.
Revocable Living Trust: The Cons
Where revocable living trusts have benefits, they also have some drawbacks. Listed below are some of the negatives aspects of using a revocable living trust:
- They can be more expensive than creating an ordinary will.
- A revocable living trust requires maintenance. As you buy, sell, and accumulate or liquidate assets, you must transfer them into and out of the trust.
- A revocable living trust does not provide asset protection from liens, creditors, or lawsuits.
Irrevocable Living Trusts
Irrevocable living trusts are another type of estate planning tool. Irrevocable living trusts differ most from revocable living trusts in that they cannot be changed or revoked. You will want to review it with your estate planner to determine if it would benefit your estate.
An irrevocable living trust becomes an entirely separate legal entity that holds your assets. A trustee will manage those assets in a way that most positively impacts your beneficiaries.
Irrevocable Living Trust: The Pros
You may choose an irrevocable living trust when planning your estate for several reasons. The following is a list of the benefits:
- An irrevocable living trust will provide asset protection from lawsuits and creditors. You no longer legally own the assets. The trust does, so they cannot come after assets that reside there.
- When tax time rolls around, your heirs can benefit from an irrevocable living trust. Assets held in the trust will be removed from your taxable estate upon your death, therefore reducing estate taxes.
- By placing assets in an irrevocable living trust, you may be able to qualify for Medicaid benefits. Since your assets will be less, you could be able to qualify for the requirements.
Irrevocable Living Trust: The Cons
With both types of trust, there are some reasons they may not work for you. Listed below are some of the negatives that come with using an irrevocable living trust:
- Irrevocable living trusts lack flexibility. Once assets are moved into the irrevocable living trust, you can only remove them with the consent of the trustees and your beneficiaries.
- You forfeit the ability to make decisions about your assets held in the trust.
- Setting up an irrevocable living trust can be expensive. Irrevocable living trusts require ongoing maintenance and management costs.
Which Living Trust Should You Choose?
Consider your estate planning goals. If your principal reason for creating a trust is to avoid probate, you may want to go with a revocable living trust. If you are looking for tax benefits or to avoid creditors coming for your estate, an irrevocable living trust may make more sense.
For flexibility, a revocable trust is a way to go. But, if you are comfortable giving up control of your assets, then an irrevocable trust may be a suitable choice for you.
It is important to speak with an estate planning attorney in Colorado to determine the cost of setting up and maintaining either type of trust so that you can ensure your money is well spent. It is essential to realize that it is not an “either/or” deal. It is possible to use both devices to reach the goals you have for your estate.
Consider the pros and cons of each with your estate planning lawyer before making decisions about your assets. Coming up with a comprehensive estate plan that meets your needs with one of the estate planning attorneys with Brady, McFarland, & Lord, LLC, can help you to feel confident in the plans you make for the assets you worked hard to accumulate.