To relieve the burden on your loved ones, you want to make sure that your affairs are in order before your passing. This is where an estate plan comes into play. A proper estate plan lays out your wishes and orders in regards to all of your belongings and capital.
A solid estate plan will include a trust. Depending upon your specific circumstances, it may be better to select a revocable or an irrevocable trust. As you weigh your options for a trust, consider these key facts about revocable and irrevocable trusts.
Whether your trust is revocable or irrevocable does not so much determine the composition of your trust, but rather the actions you can take with it. In short, with a revocable trust, you can change your mind about the agreement, while the terms are set in stone with an irrevocable trust.
Therefore, if you foresee a possibility of you needing or desiring to utilize the property that you want to place in a trust, a revocable trust may be the way to go. On the other hand, if you know exactly how you want to distribute or utilize specific property no matter what, an irrevocable trust could be an effective safe lock.
There are some circumstances where a revocable trust can become an irrevocable trust. Most commonly, this can occur if you pass or become incompetent. At either point, the trust immediately becomes irrevocable.
Effect on estate taxes
The Department of Taxation and Finance provides a full breakdown of estate tax and the process. In general, property in an irrevocable trust is technically no longer part of your estate, so it is not included for estate taxation. However, you can still maneuver property in a revocable trust, so it does receive taxation. Depending upon your particular situation, either form of trust can be beneficial.