Whether an irrevocable or a revocable trust works best for your purposes will depend on your objectives for creating one. Consider tax benefits, ownership, flexibility and debt when deciding between the two.
While both trusts efficiently distribute assets to your heirs, each has different privileges.
Benefits of an irrevocable trust
When creating an irrevocable trust, you transfer ownership of your property to the fund. Giving up assets while you are alive may seem counterintuitive, there are advantages to choosing this option:
- Reduces estate tax – Property held in the trust is no longer yours, and the government cannot tax it after you die. These savings pass directly to your heirs.
- Prohibits debt collection – Creditors may quickly collect debts after your death. Assets in the trust are untouchable because they are not yours, keeping this property available for your beneficiaries.
- Assists with medical insurance – You must have limited assets to receive federal medical insurance. The government does not consider property in the trust when determining your eligibility, making it easier to qualify for coverage.
Revocable trusts provide flexibility
A revocable trust gives you the choice to retain control of your property. While estate taxes and creditors still have access to your equity, so do you. You can make changes to beneficiaries, assets and trustees at any time. Choosing a revocable trust keeps your heirs from going through probate after you die if you do not have a will.
When planning your estate, consider all your assets to decide whether an irrevocable or a revocable trust is best for you.