Revocable Or Irrevocable Trusts
Both revocable and irrevocable trusts are considered living trusts, or inter-vivos trusts, in the sense that they are established during one’s lifetime. However, when one thinks of a living trust, they are generally speaking of a trust that can be modified at any time by the grantor, reverting the property back into his or her name if they so desired. In contrast, irrevocable trusts are set up whereby the grantor can never revoke assets back to their name, with only one rare exception. The whole purpose of the irrevocable trust is to give an asset to the management of someone, a trustee, for the purpose of a beneficiary, without ever planning to own it again.
Technically speaking though, an irrevocable trust could be modified but only with unanimous consent of the beneficiaries, and possibly causing tax implications to the grantor. This is the only exception, and it’s rarely ever done. Getting beneficiaries to
agree on reverting assets that were once given to them is a very rare thing that almost never happens. So, when you think of an irrevocable trust, remember that it’s something that never changes, where as a living trust could change.Nevertheless, living trusts basically only have one benefit. They help assets bypass probate and pass on to someone without having to go through the hands of a Probate Court. That is basically the only benefit of a living trust. The only other benefit of a living trust is that some living trusts enjoy some degree of anonymity, depending on if the grantor uses a name not associated with him or his or her family. Living trusts get no tax advantages or asset protection. Remember that. In fact, there are times when judges even rule that assets placed in a living trusts were put there under an unaccepted practice called Alter Ego, and therefore creditors are able to gain access to assets in living trusts. This is why we say there is no asset protection. And, from a financial planning standpoint, a good financial planner who understands estate planning will usually not recommend a living trust in a comprehensive financial plan. There are simply too many downsides.
Therefore, from a definition standpoint, financial planners will not view irrevocable trusts as living trusts, even though the grantor is still alive. Technically speaking, we consider all irrevocable trusts to be in a separate category from living trusts. We like to say they are opposite from living trusts, because the assets inside them can never revert back into the name of the grantor without invalidating the entire trust. Therefore, in summary, a revocable trust can be changed, and an irrevocable trust cannot. But there is something much more important about trusts than who owns what, when you are looking to set up a trust. We like our clients to think bigger than getting a living trust, and just avoiding probate. This is why good financial planners need to steer clear of living trusts when helping manage assets for their clients. Way more important than the title of the assets or avoiding probate is that a trust, properly constructed, can provide bullet-proof asset protection and unbelievable tax benefits. Providing clients with these two massively important benefits is what separates financial planners from professional financial planners. Professional financial planners understand estate and trust planning. What good is it to help a client mangage and grow assets, when only one lawsuit can come along and take everything away from them?
Average financial planners think products and strategy. They consider a problem and think about a strategy or a product to fix or eliminate a problem. However, professional planners do not do this. Professional financial planners never consider a product or a strategy first to fix or eliminate a problem. Professional planners will first take a step back and look at the big picture. They don’t think products and strategy. They think planning and details. More important than a strategy is having a comprehensive plan that understands the details. The details are what make or break a strategy. Details are what comes back to bite you, defeating any strategy. In fact, a strategy is only as good as the details that make it work or not. Not considering details is what makes plans fail, and this is why professional financial planners are usually sought after when the outcome really matters. Super wealthy people don’t want strategy. They usually seek out professional planning. They can’t afford mistakes. They know a little price to pay on the front end of big decision or change can make all the difference in the world.
So, when looking for a trust, it’s important to know the different types and if they have financial planning value or not. We know that all trusts are either revocable or irrevocable. Next, let’s see other types and see what makes them valuable. Why You May Want A Professional Trustee It is difficult at best for one individual to possess all of the characteristics necessary to manage a trust. Our trust management professionals are trained and educated to fulfill the duties of a trustee and deliver responsive service to the client.