Estate Planning Newsletter
Trusts: Revocable & Irrevocable
Unlike a will or some other types of trusts, which take effect upon the death of their creator, a “living trust” or “inter vivos trust” comes into effect during its creator’s lifetime. The creator of a living trust is referred to as a trustor or settlor.
Characteristics of a Revocable Living Trust
A revocable trust is one that:
- Is created by the trustor while the trustor is alive
- Gives the trustor the power to revoke the trust while still alive
Purpose
Living trusts have two main purposes that typically cannot be accomplished by wills:
- Avoiding probate
- Providing for management of a person’s estate if the person becomes incapacitated
Role of the Trustee
When a living trust is created, a trustee must be chosen as well. The trustee is often the trustor himself/herself, although the trust should also name a successor trustee who is someone the trustor believes is responsible and can manage a trust. If the trustor becomes incapacitated, typically the trustee is given authority to care for and make decisions about the property subject to the trust.
The trustor can generally designate himself/herself as trustee, although certain types of trusts require that someone else be the trustee.
Characteristics of an Irrevocable Trust
An irrevocable trust is one that:
- Is created by the trustor while the trustor is alive
- Does not give the trustor any power to amend or revoke
There are two basic forms of irrevocable trusts:
- Temporarily irrevocable – It would only be irrevocable for the amount of time specified by the trustor, such as 5 years or 10 years
- Permanently irrevocable – May not be changed or amended for the duration of the trust
Why Have an Irrevocable Trust?
An irrevocable trust allows for removal of property from the trustor’s taxable estate for estate and gift tax purposes and allows for use of the annual gift & estate tax exclusion as part of a gift-giving program. It also simultaneously prevents beneficiaries from exerting any control over the property.
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