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Trusts Series Part IV: Revocable and Irrevocable Trusts

In a previous part of this series we discussed forms of trusts and introduced the inter vivos trust. Inter vivos trusts are any trust created by a donor while he or she is still alive. This is a very general description and inter vivos trusts can come in numerous types and contain many different provisions based on the intent behind the creation of the trust. With this part of the series we will begin to narrow down the types of trusts and the provisions in those trusts.

 

One of the first decisions that must be made in regard to the creation of a trust is whether it will be revocable or irrevocable. The revocability of a trust refers to the donor’s ability to change provisions in the trust or eliminate the trust completely and take the assets and property back. The creation of a revocable trusts grants the donor these rights, this allows for more control over the trust after its execution, but it will lack some of the benefits that an irrevocable trust offers.

 

In a revocable trust, a donor is still deemed to have enough control over the assets in the trust to still have ownership rights. Revocable trusts generally do not offer the asset protection benefits of irrevocable trusts and are more often used in estate planning to avoid the probate of an estate. As mentioned in the previous part to this series, entitled “Trust Forms,” trusts of this nature can be used to pass property in an easier, cheaper, and more private manner. However, irrevocable trusts provide even more powerful benefits.

 

Irrevocable trusts generally remove the donor’s ability to change any provisions in a trust, remove or add beneficiaries of the trust, or dissolve the trust and take back the property within it. The trade off is that the donor is no longer considered to “own” the property in the trust. This means that the trust can be used to protect the assets in the trust from creditors, help to plan for Medicaid qualification, and potentially avoid estate taxes.

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