When creating a trust, there are two basic ways to go: the revocable or the irrevocable trust. What’s the difference?
To begin with, “revocable” means “capable of being revoked” or “changeable.” If you create a revocable trust, you can change the terms and details whenever you want. And yes, “irrevocable “ means the opposite: once written, even you cannot change the trust. Both types of trusts have their place.
Flexibility is the obvious benefit to the revocable trust. But you should know that a revocable trust is basically just a working document. It typically has your Social Security number. It doesn’t help you save on income taxes, and doesn’t help with estate taxes. The trust basically distributes money to you while you’re alive, and to your beneficiaries, after you’re dead. It’s like your will. If your goal is to take care of all of the complexities of your estate before you die, a revocable trust could be a good idea. By creating one, you’re outlining your wishes regarding your finances and doing a lot of the work in advance. Upon your death, your beneficiaries simply take over the trust and go about their business.
An irrevocable trust is more than a document. You actually transfer money into the trust and it becomes its own entity, with its own tax identification number. An irrevocable trust can protect your assets and can help you and your beneficiaries with taxes. And though the language of the trust can’t be changed, you can build flexibility into the trust when you create it.