One of the commonly used tools in estate planning is a trust. It’s a legal arrangement that people use to manage and distribute their property during their lifetime or after they pass on. When discussing estate planning with their clients, lawyers in a Denver law firm will often discuss revocable and irrevocable trusts.

The question then arises about the difference between a revocable and an irrevocable trust. Knowing the difference helps you decide on the instrument to use to ensure that what you’ve worked so hard for over the years is well-protected.

What is a Revocable Trust?

A revocable trust is also commonly known as a living trust and is a legal document that designates a separate legal entity. It allows you (the grantor) to rename the assets to reflect the name of the trust. You also retain total control over the trust and all the assets therein during your lifetime.

That means you can sell, give away, or remove assets in the trust or modify its terms. Besides, you can revoke or end the trust at any time. You are the trustee and beneficiary of the living trust during your lifetime. Alternatively, you can select a successor trustee to manage the assets on your behalf.

Upon your death, a revocable trust becomes an irrevocable trust. It would help to work with an experienced trust lawyer in Denver to understand what this means. They can provide crucial legal counsel to help you make the right choice and avoid loopholes that could cost you in the future.

What Are the Benefits of a Revocable Trust?

A Denver trust lawyer may advise their client to choose a revocable trust for several reasons, including the following:

  • Effectiveness: A revocable trust takes effect as soon as you sign, fund the legal document, and retitle assets in the name of the trust. It can take care of your assets even if you become incapacitated.
  • Flexibility: You can quickly amend the details of a revocable trust whenever the need arises.
  • It can help your loved ones avoid probate: Many people use irrevocable trusts to protect their families from going through probate upon their demise. That means the details of the trust can remain private.
  • Uninterrupted management: Assets within a revocable trust can continue to be managed without interruption, even if you lose capacitation, as long as you fund the trust.

Besides, a revocable trust ensures you can access your property and assets even if you become incapacitated. A Denver trust lawyer can tell you that while you can have a Durable Power of Attorney only, POAs are more complicated when dealing with third parties.

On the downside, a revocable trust has no tax advantage, no asset protection, and requires regular updates. Modifying assets during major life changes can be time-consuming.

What is an Irrevocable Trust?

As the name suggests, an irrevocable trust requires a court order or beneficiary approval to modify it once executed. Upon transferring your assets to an irrevocable trust, the assets belong to the trust, and you have no freedom to make changes as you wish. Instead, you must sign an agreement, and all the trust beneficiaries or a court order must be present to modify it.

Irrevocable trusts are less popular estate planning tools because they lack the flexibility of revocable trusts. However, the exact rules may vary from state to state, so it’s advisable to consult a trust law firm in Denver for legal guidance.

What Are the Benefits of an Irrevocable Trust?

Given the inflexibility of an irrevocable trust, you would wonder what benefits it provides. Undoubtedly, there are some distinct benefits to an irrevocable trust:

  • Tax benefit: An irrevocable trust removes your taxable assets, meaning the assets are not subject to tax upon your demise.
  • Asset protection: An irrevocable trust protects the assets from access by creditors, even in legal judgment
  • Provides access to government benefits: An irrevocable trust preserves eligibility for government benefits like Medicare and Supplemental Security income, preventing you from depleting your assets and savings.

On their downside, irrevocable trusts can’t be changed once finalized. They also require you to file a tax return, attracting a cost for preparing and filing the return. Given the complexity of creating an irrevocable trust, it would be in your best interest to engage the help of an experienced estate planning lawyer when creating one.

How Can I Determine the Right Type of Trust to Create in Denver, CO?

Revocable and irrevocable trusts have benefits and drawbacks that can make choosing the most suitable tool challenging. Even so, there are important considerations to help you make the right choice.

When to Choose a Revocable Trust

You can choose a revocable if you:

  • Have an estate whose value is less than the federal tax exemption
  • Want your heirs to avoid the probate process
  • Own assets in multiple states and want to avoid ancillary probate
  • Want to continue having control of your assets and think you may want to modify the trust over your lifetime

When to Choose an Irrevocable Trust

An irrevocable trust would be a better option if:

  • You want to protect your assets from future creditors
  • You have no objection to giving up control of the trust after establishing it
  • The value of your estate is more than the federal tax exemption, and you would want to enjoy tax benefits

However, there could be more factors that influence your decision. Contact a skilled trust attorney in Denver for further guidance.

An Experienced Trust Lawyer Helping You Plan and Protect Your Future

Estate planning using a trust can be complex. That’s because you have to choose between a revocable and irrevocable trust. These two types determine how much control you can exercise over your assets upon establishing the trust. They also determine what happens if you become incapacitated.

Having a skilled Denver trust attorney to guide you is the first step toward making the right decision. A legal professional can help you create these and more estate planning tools. Our law firm has experienced and dedicated estate planning lawyers to help you save time, money, and legal headaches. Contact us for a FREE in-depth case evaluation.