You make a good living and, like any responsible parent, you want to provide for your children’s future. A trust sounds like a good idea.
Before you set one up, however, you need to understand the difference between revocable and irrevocable trusts so that you can properly evaluate the advantages — and disadvantages — of each.
Here are the basics you need to know:
- Revocable trusts are malleable. If you decide that you don’t like the way the trust works, you can change it. If you decide you don’t want a trust at all, you can end it. You remain in control of the assets during your lifetime. Revocable trusts can be (and usually are) designed to become irrevocable after the grantor’s death.
- Irrevocable trusts cannot generally be altered or ended once they are created. While that means you need to be very sure about and comfortable with the terms you set, such a trust does offer superior tax benefits and asset protection. Whatever is in the trust generally can’t be touched by creditors; and they don’t count as personal wealth for taxation.
Within these two broad categories, there are numerous variations, including charitable trusts, constructive trusts, tax by-pass trusts, spendthrift trusts, special needs trusts and more. That’s why it’s so important to think carefully about the goals you have for the future and your heirs as well as your tolerance for risk. Make sure that you make your wishes clear when you talk to an experienced attorney about setting up a trust so that the end results are what you envision.