Matthew S. Payne is a Chicago-based attorney with a 20-year record of success in civil litigation, real estate law and estate planning.

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Differences between revocable and irrevocable trusts

On Behalf of | Nov 23, 2021 | Estate Planning

People in Chicago, Illinois, can choose several estate planning tools. One popular tool that people use is a trust, which helps control where assets go. Trusts are either revocable or irrevocable and have their own benefits.

Revocable trusts

The grantor, or creator, can create revocable trusts, sometimes called living trusts, during their lifetime to control asset distribution. After the trust is created, the grantor still owns the contents, so they may alter, sell or remove those assets. They may serve as trustee and assign a co-trustee to manage the trust upon their death or if they become incapacitated.

Since the grantor still owns the assets, income earned from sales is taxable, and assets are not protected from creditors. However, a primary benefit of revocable trusts is that it keeps assets out of probate court, which can take months. A revocable trust also protects the privacy of the beneficiaries since it goes through probate and becomes public record.

Irrevocable trusts

The contents of irrevocable trusts cannot be altered or removed without permission of the beneficiary once created. Unlike a revocable trust, the grantor must assign a trustee to manage it and distribute assets upon their passing. A major benefit of irrevocable trusts is that the grantor no longer owns the assets, so they avoid taxes and creditors can’t touch them.

Irrevocable trusts are flexible enough to allow for decanting, or transferring assets from an older trust into a new one with more benefits. People in fields that are susceptible to lawsuits, such as doctors, can shield assets from judgment. The grantor can choose from several irrevocable trusts, such as a charitable remainder, generation-skipping trust or spendthrift trust.

Trusts make a great estate planning tool, and there are a variety of trusts to fit the grantor’s needs. However, a will is still needed to protect assets not in trusts.