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What's the difference between revocable and irrevocable trusts?

When you create an estate plan, you have several options for getting things set up in the manner you desire. One of these tools is trusts. A trust is a special arrangement that enables you to put assets into the trust so that the beneficiary of the trust can reap the benefits of it after you pass away.

While there are many different types of trusts that you can establish so that you can ensure your wishes are followed, they are all divided into two basic types – irrevocable and revocable.

What are the differences between an irrevocable and revocable trust?

The irrevocable trust is created with specific conditions and can't be changed once it's established. The positive side to this is that the contents of the trust, once funded, can't be claimed by creditors. This means that your loved ones will get exactly what they're due.

A revocable trust is one that can be changed or canceled even after it's funded. This type of trust provides the creator with more flexibility to modify things if situations change. The issue that some people come across is that the contents of the trust, even if the trust is funded, can be claimed by creditors through a court process. Once the creator passes away, this trust almost always becomes irrevocable because the creator isn't alive to make changes.

How are trusts set to reflect the creator's wishes?

While all trusts are either revocable or irrevocable, there are a variety of options within those categories. Each serves a specific purpose, so speaking to your estate planning professional about your goals for the trust might be beneficial.

One example of a trust that serves a specific purpose is a special needs trust, which helps a person on needs-based assistance programs to retain those benefits while still being able to receive the help of the trust. The key in this trust is that the beneficiary doesn't have control over the trust.

Remember that your trust is only one component of the estate plan. You need to review the entire plan to ensure that it serves the purposes you intend. Once you create it, you'll need to check it periodically so you can make sure that it still meets those needs. Some aspects can be modified, which is helpful if you have a major life change such as a divorce, a marriage or the birth of a child.

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