If you are considering the differences between a revocable vs irrevocable trust and which one is right for you, the experienced Colorado estate planning attorneys at Johnson Law Group are prepared to help you make well-informed decisions that serve your estate planning needs.
Estate planning is often complicated but protecting your financial legacy and planning for your family’s future is too important to leave to chance. The dedicated Colorado estate planning attorneys at Johnson Law Group have the impressive experience and knowledge to help you address your estate planning needs – wherever you are in the process. Contact our legal team today at (720) 730-4558 (text) or (720) 463-4333 (call).
Before addressing the distinctions between revocable vs irrevocable trusts, it is a good idea to provide information regarding trusts in general. According to the Colorado Judicial Branch, a trust is separate from other estate planning tools, such as a Last Will and Testament (will).
A trust is used to manage your assets over the course of time – in the manner that you deem appropriate. Once you deposit assets into a trust, you become the grantor of the trust, and a third-party who is called a trustee will begin managing these assets on your behalf. While this trustee will decide how the assets in the trust will be invested and how they will be distributed upon your death, he or she is legally bound to do so in accordance with the guidelines you set forth when you form the trust.
The primary distinction between a revocable trust and an irrevocable trust is that revocable trusts can be modified after their creation and that irrevocable trusts generally cannot – without considerable effort (and only in some instances). Irrevocable trusts, however, offer considerable tax benefits (for those with considerable assets) that revocable trusts do not afford.
A revocable trust is also known as a living trust or a living revocable trust. Your revocable trust can be modified by you at any time, which means that you can do any of the following (according to your discretion):
The flexibility of revocable trusts – when compared to irrevocable trusts – may leave you wondering why anyone would choose an irrevocable trust, but it is important to also consider some of the disadvantages inherent to revocable trusts.
With all the flexibility that is built into revocable trusts come fewer protections from creditors. If someone has a revocable trust in place and faces a judgement from a lawsuit, the assets in the trust can be liquidated as a result.
Upon the grantor’s death, the assets in a revocable trust are subject to estate taxes at both the federal and state levels, according to the Internal Revenue Service and the Colorado Department of Revenue.
It is important to point out that, once the grantor of a revocable trust dies, the trust becomes an irrevocable trust.
The most common purpose served by revocable trusts is avoiding the probate process, which is the legal process that disperses an estate upon the estate owner’s death and which can be a long and arduous process. A revocable trust keeps the assets therein out of probate court (which an irrevocable trust does, too) while also allowing the grantor to retain control over it until his or her death. It is important to point out that, once the grantor of a revocable trust dies, it becomes an irrevocable trust.
As the name implies, an irrevocable trust cannot be revoked once it is executed (signed). Only in exceptionally rare instances can changes be made to an irrevocable trust. This is because the benefactor of the trust transfers assets into it, which ends his or her rights of ownership and his or her control over the assets. An irrevocable trust generally cannot be modified after it goes into effect, and this is true even if the grantor changes his or her mind on the matter.
Once an irrevocable trust has been funded, the trust becomes the owner of the assets. This is a bit tricky because the assets in a revocable trust are also the property of the trust, but because the grantor continues to have control over it, the law sees him or her as retaining ownership. Another distinction when it comes to revocable vs irrevocable trusts is that the assets that fund an irrevocable trust are not vulnerable to a legal judgement against the grantor. Estate planning is a complicated legal matter, and trusts are an especially challenging piece in the puzzle of estate planning. If you are facing questions or concerns related to either a revocable or irrevocable trust, the skilled Colorado estate planning attorneys at Johnson Law Group are here to help.
While there are tax implications for revocable trusts, there are none for irrevocable trusts, which can be especially advantageous for those with considerable assets. The federal government does not charge estate taxes unless a married couple’s assets exceed $23 million currently, and couples whose assets exceed this limit are generally on the hook for considerable federal taxes on the additional amount when estate taxes are levied (when the assets pass on to beneficiaries).
Estate planning is something you should consider addressing sooner rather than later, and the practiced Colorado estate planning attorneys at Johnson Law Group take great pride in our proven ability to help clients like you obtain the peace of mind that comes from carefully attending to their financial legacies. We are here for you, so please do not wait to text us at (720) 730-4558 or call us at (720) 463-4333 today.