Many people reading this blog post may already understand that one of the most effective estate planning tools is forming a trust. A trust not only helps avoid probate and save on estate taxes but also provides privacy, protection and proper distribution of assets. In Massachusetts, a person can choose between two major types of trusts: revocable and irrevocable. This blog post will discuss both types and try to show the differences.
Revocable trusts
Revocable trusts are a popular estate planning tool and can often prove to be more advantageous than irrevocable trusts. A revocable trust exists as long as a person is alive and the person who created the trust has the right to revoke or make changes as desired. Also, a revocable trust is not entered into probate.
However, a revocable trust cannot be used to protect assets when seeking eligibility for nursing home benefits. Also important to remember is that a revocable trust is not protected from creditors and that it can attract estate taxes.
Irrevocable trusts
Unlike revocable trusts, an irrevocable trust, once created, cannot be modified or revoked without the permission of the trust’s beneficiary. In other words, once someone has transferred assets into an irrevocable trust, that person has given up all rights of ownership of the trust and the assets held in it.
While this may seem complicated, the advantage of an irrevocable trust is that the assets held in the trust do not attract estate taxes. The assets are also protected from creditors.
Making the right choice
Which type of trust is the most suitable depends largely on the circumstances of the person who wants to create it. In order to understand the nuances, it may be a good decision to speak with an experienced estate planning attorney. For starters, readers may find it to be insightful on the subject if the wish to visit the Trusts section of our website.