Asset protection is a core component of the estate planning process. Like many estate owners, you might have assets that you want to keep out of a Florida probate court. To do so, you might consider creating a trust. There are two primary types of trust: revocable and irrevocable. Understanding the similarities and differences between the two can help you determine which one best fits your needs.
When you revoke something, it means you remove or change it. Thus, you, the grantor, can change a revocable trust after you have created it. Perhaps you want to add or remove a beneficiary or change the terms under which one can withdraw and use money in a trust fund.
All revocable trusts become irrevocable when you die
An irrevocable trust is typically immutable; you cannot change or cancel it. You cannot convert an irrevocable trust to a revocable one. However, every revocable trust automatically becomes irrevocable upon the grantor’s death.
These two trusts differ regarding trustees
If you initiate a revocable trust, you can retain ownership of it. In other words, you can name yourself as the trustee (overseer) of the trust. If you are still the owner of the trust, the assets contained therein may be subject to estate tax.
When you create an irrevocable trust, you must designate another person or group as trustee to manage the trust. Because you are not technically the owner of the trust, its assets are not subject to estate tax, nor do they have to pass through probate court when you die. For these reasons, many estate owners choose to transfer ownership of things like a house by placing it in a trust rather than including it as an asset in a will.
Exceptions to the rules regarding irrevocable trusts
As mentioned earlier, you cannot usually change an irrevocable trust once you sign off on the documents. There are exceptions to the rule, however. In some cases, you can make changes if all beneficiaries named in the trust agree to the suggested change. Such issues usually require a lengthy legal process.
Can you have both types of trust?
Yes, it’s possible to incorporate both a revocable and irrevocable trust into your estate plan. In either case, you can stipulate how and when to use certain assets, such as leaving money as an inheritance for a grandchild to attend college. Always review Florida estate planning laws before drafting any legal documents.