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Charleston Estate Planning & Asset Protection Blog

Wednesday, December 13, 2017

What is the Difference Between a Revocable and an Irrevocable Trust?

When planning for your legacy, a popular option for tax and practical reasons involves creating a trust. A trust can be either revocable or irrevocable. While a revocable trust may seem like the best idea, to maximize flexibility for the person and his or her future options, the reality is that creating a revocable trust does not often solve the problems that trusts are meant to solve. A South Carolina trust lawyer will be able to research your specific situation and see which type of trust fits with your personal estate planning goals.

Revocable Trusts Explained

A revocable trust fund is just that – a trust fund that can be revoked at any moment. This grants maximum flexibility for the person who put the assets into the trust, legally termed the “Grantor.” The Grantor can remove the assets or dissolve the trust entirely if he or she chooses.

Unfortunately, this amount of flexibility comes with serious drawbacks. The law basically treats the Grantor as if he or she just basically owns the property. Therefore, the trust will be part of the estate when the person passes away. A revocable trust will be subject to estate taxes, probate proceedings, and will not avoid capital gains taxes. These all happen to be the primary benefits of an irrevocable trust.

Irrevocable Trusts Explained

An irrevocable trust gives the Grantor much less flexibility but also gives him or her many more actual benefits. An irrevocable trust moves all of the assets into a separate account, where the Grantor no longer owns it. As its name implies, an irrevocable trust generally cannot be changed after it has been created.

The rule that the trust must operate on the terms as it was created is not always true though, a trust administration attorney may be able to help navigate changing the terms of an irrevocable trust fund. For example, a serious change in circumstances that could frustrate the original Grantor’s intent when the trust was created may be sufficient legal grounds to change the trust fund.

If done correctly, the benefits of an irrevocable trust can be numerous. The most popular reason for using an irrevocable trust involves reducing estate taxes. Because the grantor no longer owns the assets in the trust, they are not included in the estate – which can have very serious tax implications, especially when dealing with large estates. Another result of the Grantor no longer legally “owning” the assets is that the trust fund is unlikely to go through probate proceedings. This allows for the Grantor to ensure his loved ones are taken care of immediately after he or she passes away since probate proceedings are typically lengthy affairs.

Proper estate planning is essential to ensure a person’s wishes are carried out after he or she dies. A trust fund can be a crucial tool for estate planners to avoid estate taxes and probate proceedings. This is especially true when dealing with large estates where taxes and legal fees can eat into substantial portions of the estate. Request a consultation with one of our South Carolina trust administration lawyers to ensure your specific estate goals are legally sound and prepared to be carried out.

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Wiles Law Firm, LLC helps clients with their estate planning needs in Charleston, South Carolina and the surrounding areas such as West Ashley, Summerville, North Charleston, Mount Pleasant, and John's Island.

Information on this website is not legal advice. Further, viewing of the enclosed information does not create an attorney-client relationship with Wiles Law Firm, LLC. Matters will be handled by attorneys who primarily practice out of our office in Charleston County located at 852 Lowcountry Blvd., Ste. 101, Mt. Pleasant, SC 29464. M. Emerson Wiles, III is the attorney responsible for this advertisement.

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