Revocable or Irrevocable Trusts: Which One Is Right for You

Having a trust as part of your estate plan can provide several benefits, such as keeping those assets out of probate and being able to create custom terms for how and when your beneficiaries receive their inheritances. However, there are different kinds of trusts, each with its pros and cons. Working with an experienced estate planning attorney, such as those at Sandahl & Damhof, can help you determine what’s right for your needs based on the following factors.

Ability to Change Terms

One of the most significant differences between a revocable trust and an irrevocable trust is whether or not the settlor — the person setting up the trust — can change the terms. As the names suggest, a revocable trust can be changed at any point up until the grantor’s death. This includes changing the beneficiaries or trustee, taking out or putting in assets, or terminating the trust completely.

An irrevocable trust, on the other hand, generally can’t be changed. The only way to alter the terms of the trust is if the settlor and the beneficiaries agree. This is also true for the termination of an irrevocable trust. This is just one reason it’s important to work with an estate planning attorney when creating a trust. They can help ensure that you have thought about any circumstances that might change in the future and whether an irrevocable trust is a good fit.

Ease of Set Up

Revocable trusts are generally easier to create than irrevocable trusts. First, because the settlor can act as the trustee. This means that you don’t have to find someone who is able and willing to act as administrator. However, you still may wish to name a successor trustee if the entire inheritance isn’t being disbursed all at once to the beneficiaries after your death. The legal requirements for a revocable trust are also generally simpler. This means that it’s faster and easier to set up.

An irrevocable trust should only be created with the help of an experienced attorney because if you make a mistake, it may be difficult or even impossible to fix because of the unchangeable nature of these trusts. Irrevocable trusts also have more complex tax rules, which can make them more complex to create.

Asset Protection

One of the main reasons many people establish trusts as part of their estate plans is to protect their assets. If you are likely to die with debts, an irrevocable trust may be a better option, as it protects your assets from creditors. When the settlor establishes an irrevocable trust, they transfer ownership of the assets to the trust itself. This means those assets are no longer part of the settlor’s estate and, therefore, can’t be garnished by creditors to pay off debts.

While a revocable trust will keep your assets from going through probate, it doesn’t offer the same protection against creditors. The assets in the trust are still considered under your ownership, and creditors can try to access those assets to pay off your debts through the court system.

Estate Tax Benefits

Trusts are often used to attempt to minimize estate taxes, which those in Minnesota may pay at both the state and federal level, depending on how much their estate is worth. However, in most cases, revocable trusts are still subject to estate taxes. If it’s important to you that as much of your assets go to your beneficiaries as possible, an irrevocable trust generally delivers more tax savings.

Estate tax law is complex, and there are many factors to consider, such as the overall value of your estate and capital gains taxes for beneficiaries. An attorney can help you understand whether your estate may be subject to estate taxes and how to create a plan that minimizes that burden and preserves as much of your legacy as possible for your beneficiaries.

How an Estate Planning Attorney Can Help You Decide

If you’re not sure whether a revocable or irrevocable trust is right for your situation, an estate planning attorney can help. When you work with an attorney at Sandahl & Damhof, we’ll go through the following steps to ensure you have an estate plan that meets your needs.

Determining Your Goals

The first step in considering what type of trust or other estate planning tools are right for you is to list out your goals. Every situation is unique. One person may want to ensure that their children and grandchildren are provided for and to minimize estate taxes. Another may want to leave everything to a beloved charitable organization. We’ll talk with you about what you want your legacy to be to ensure we create an estate plan that achieves those goals.

Evaluating Your Estate

The next step is to evaluate your estate. This includes inventorying and valuing your assets to ensure we have an accurate assessment of what needs to be included in a trust or handled via other methods. We’ll also talk with you about any special circumstances, such as if you’re a business owner who needs to consider succession planning as well.

Creating a Comprehensive Estate Plan

Once we have all this information, the attorneys at Sandahl & Damhof will help you create a comprehensive estate plan that works for you. At a minimum, this includes a last will and testament. However, we’re also able to help clients with creating trusts, establishing powers of attorney, and Medicaid planning. Call 612-448-3898 to get started.