Setting up a trust involves giving a third party control over your assets for your benefit or that of others. If you are thinking of having part of your estate held in a tax, you need to know the type of trust that is most suitable to meet your objectives.
Broadly speaking, trusts can either be revocable or irrevocable. Here are the main differences you should be aware of before making your decision.
With an irrevocable trust, any assets or property held therein becomes the property of the trust. In essence, it means that you do not own or control any assets held in the trust. However, you still retain control over the assets in a revocable trust.
Modifying the trust
Since you do not own or control assets held in an irrevocable trust, it means that you cannot easily modify the terms of the trust once everything is set and running. If you change your mind and no longer want certain assets held by the trust, it is not easy to carry that out with an irrevocable trust.
On the other hand, you can do anything you please with assets held in a revocable trust since you still own and have control over them.
Protection of assets
Suppose you default on debt, yet you have assets in a revocable trust. In that case, the debtor can come after such assets to recover the money you owe them. However, it is not the case with an irrevocable trust. Since you do not own assets held in an irrevocable trust, they can neither be possessed to recover the outstanding debt nor are they subject to division following a divorce.
Which type of trust should you have?
It all depends on what you are aiming to accomplish. For example, do you want to retain control over your assets in the trust? Do you seek to protect your estate’s assets? Before deciding on the path to follow, it is advisable to learn more about each type of trust and ensure that it serves your purposes.