The idea of creating a trust is probably appealing to you. You might be considering an irrevocable trust since you have heard that it offers greater protection for your assets. An irrevocable trust, like any part of your estate plan, will present benefits and drawbacks that you should learn about before committing to it.
A revocable trust is one that you retain control over. You may change or abolish it if you wish. However, you cannot change an irrevocable trust once you set it up, at least not without great difficulty. Nerdwallet explains the pros and cons of an irrevocable trust.
Benefits of an irrevocable trust
Putting assets in an irrevocable trust means that you give up your ownership of them. This can be important if you work in an occupation that has a higher risk of civil litigation, like being a doctor or a real estate developer. Creditors cannot touch your trust assets since you do not actually own those assets. Certain irrevocable trusts also hold assets so your asset threshold qualifies for Medicaid and other government benefits.
Additionally, putting assets into your irrevocable trust removes those assets from being part of your taxable estate. This way, you can avoid estate taxes if you want to transfer money to a spouse, children or a charity. There are a number of irrevocable trusts that can fit various gift-giving and charitable purposes.
Drawbacks of an irrevocable trust
The problem with giving up control over a trust is that you cannot make changes if your circumstances take an unexpected turn. You might have a trustee who turns out to be untrustworthy. Your financial situation may worsen and you need to regain some of your trust assets. You might have made someone a beneficiary that you later have a falling out with. Unfortunately, you cannot remove that person as a beneficiary.
Additionally, an irrevocable trust can be complicated to handle. People with the right financial and legal experience generally do not have a problem setting up an irrevocable trust. But if you are new to trust creation, you may need assistance from professionals to carry out your trust.
You have the final decision
When it comes to your estate plans, you have the final call. Irrevocable trusts can work well with the circumstances that call for them. You might benefit from looking at alternatives that can fit your needs before deciding how to proceed.