subscribe

Revocable Trust and Irrevocable Trust-The Inside Story

Revocable trust and irrevocable trust– what are they and how do you use them? In estate planning, you see a plethora ofRevocable Trust information on the revocable trust and irrevocable trust. I’m going to answer many of the questions that come up and show you how to use these trusts. This is the inside story on the revocable trust and irrevocable trust that others often hide.

Once you start to learn about trusts, you find out about dozens of different types of trusts.

You will hear about living trusts, loving trusts, security trusts, land trusts, family trusts and numerous other kinds of trusts. The truth is all trusts fall into two categories, the revocable trust and irrevocable trust. The difference is that the revocable trust allows you to change your mind and dissolve the trust. The irrevocable trust can never be changed. Once it goes into place you’re stuck.

Whether to choose a revocable trust or an irrevocable trust depends on the asset protection you want and the tax treatment you need.

Complete Asset Protection

If your goal is complete asset protection, you would consider an irrevocable trust because it is “permanent” and the court and the IRS will treat the trust as separate from you. Assets in an irrevocable trust are not your assets, they belong to the trust beneficiary. As a result they are protected from your creditors and liabilities. Assets in the irrevocable trust are not yours so they will not be included in your estate for estate tax purposes. Also, an irrevocable trust becomes a separate tax entity so money generated by the trust assets will not be included in your income.

The irrevocable trust may sound perfect. It is true that the irrevocable trust is a great asset protection tool, but if you get in trouble or change your mind, you cannot dissolve the trust. You have given that trust and the assets in it to the beneficiary. It is no longer yours. I sometimes hear of an irrevocable trust that names you as the beneficiary, or a trust that has language saying you can change it. The truth is that if you are the beneficiary or you can change the trust, the assets in the trust will be subject to your creditors. If someone tries to sell you this type of trust be wary.

Most Popular Trust

The trust you want is a living revocable trust. It’s called by a dozen names including: living trust, revocable living trust, AB living trust, CB living trust, loving trust, family trust. It’s all the same trust. Every lawyer has to give the trust a “special” name so you have to go to that lawyer to get the “special trust.” You can “revoke” a revocable trust at any time, the courts and the IRS will consider the assets of the trust as your assets.

The revocable living trust is a popular estate planning tool. However, they don’t offer much asset protection. If there’s no asset protection and no tax advantage, what is a revocable trust good for? The revocable trust is primarily good for three things: probate avoidance, estate tax avoidance (married couples), and asset management during life and after death. It can be used as a tool to hide your assets. It is basically invisible to the IRS. You will use your social security number as the living trust’s tax ID number, and you will file your 1040 form just like you always have. It is also easy to use.

Beware of Testamentary Trust

Knowing this, don’t just go ask your attorney for a revocable trust. He may give you what is called a testamentary trust. A testamentary trust is a “revocable trust,” because the testator could revoke the will and make out a new one. It is written to be part of your will. The will describes the trust and lays out all of its terms. After the testator (person making the will) dies, all of the property of the deceased is probated under the will, and then it is placed or “funded” into the trust for long term administration. Because the testamentary trust is part of the probate process, the courts and the lawyers will be involved with it as long as it exists. The fees will go on until all the property is gone. You want to avoid probate and you can, but not with a testamentary trust.

The latest edition of my book, Protecting Your Financial Future, walks you through revocable trusts and how to use them for your benefit. This book has been a Time-Warner Book-of-the-Month Club, which means it is fun enough to read that Time-Warner figures book clubs should read it. Get your copy now for only $14.99, and get the free DVD, Using the Law to Make Money and Protect Your Assets ($19.99 value) included.

 

Boot Camps

Follow Lee as he travels around the nation educating various groups on estate planning and asset protection. Lee has traveled to almost every state in the nation and is considered as one of top estate and asset protection attorneys in North America.

See where he is speaking next...

What’s New

Legalees A+ BBB Business Review

Social Networks

 

 

Legalees A+ BBB Business Review

Testimonials

We wish everyone in America had the means to obtain the knowledge that Attorney Lee Phillips is attempting to impart in the Accumulation and Preservation of Wealth course. We are thankful that there is a legal system that is designed to protect people’s assets, no matter how little or how much.
~ Ed, Dallas Texas

Powered by WishList Member - Membership Software