What Is The Most Common Type Of Trust?

What is the most common type of trust? There are several options to choose from, so how do you know which one is the right fit for you?

First, what is a trust? Trusts are important legal documents that allow a third party to help manage your assets. They are considered separate legal entities that help decide what happens to your estate.

During the estate planning process, you can choose from nearly a dozen types of trusts. However, the most significant distinction between them is whether the trust is revocable or irrevocable.

Revocable Trusts

Between the two main types of trusts, revocable trusts are the most common. This is primarily due to the level of flexibility they provide.

In a revocable trust, the trustor (or the person who created the trust) has the option to modify or cancel the trust at any time during their lifetime. For this reason, revocable trusts are often called “living trusts.”

Benefits of Revocable Trusts

  • Allows the trustor to retain complete control of their assets (if named as a trustee)
  • Offers excellent flexibility for modifications throughout the life of the trustor
  • Can easily be canceled at the will of the trustor (also called a grantor)
  • Automatically becomes irrevocable in the event of the trustor’s death
  • Avoids probate court and the associated fees

Potential Drawbacks of Revocable Trusts

  • Revocable trusts may be subject to estate taxes

As you can see, revocable trusts are flexible, cost-efficient, and are relatively easy to manage. To start creating your revocable trust, click here to contact an attorney now.

Irrevocable Trusts

The alternative type of trust is an irrevocable trust. This is an arrangement where the trustor forfeits the right to change the terms.

In this kind of agreement, we see a major difference in who is given control. With irrevocable trusts, the assets are transferred to the trustee’s estate. Therefore, the responsibility of managing those assets falls exclusively on the trustee.

Once an irrevocable trust is established, it cannot be altered or canceled, which is the key difference between this arrangement and a living trust.

Benefits of Irrevocable Trusts

  • May reduce trustor’s estate taxes since the assets are no longer in their control
  • Protects the trustor against legal judgments, should they happen to arise
  • In most cases, irrevocable trusts avoid probate court almost entirely

Potential Drawbacks of Irrevocable Trusts

  • Loss of control in regards to asset management
  • Cannot be reversed in the event your interests/intentions change
  • The distribution of assets may be subject to income taxes

As seen above, the main appeal of an irrevocable trust is the ability to protect assets against judgments. They can also potentially save the trustor thousands of dollars in estate taxes.

Depending on your current financial situation, this might be the better choice. Discuss your options with our attorneys to learn which trust is right for you.

Key Takeaways

In short, revocable trusts allow you to continue managing your assets during your lifetime, while irrevocable trusts transfer your assets to the estate of your trustee. Each has its own list of benefits depending on the unique situation of the trustor.

Trusts have the potential to make or break your estate plan. Because of the potentially far-reaching consequences of each type of trust, neither one should ever be taken lightly.

If you or someone you know needs to establish a trust at an affordable rate, contact the qualified attorneys at Dana and Associates, LLC to start discussing your options. There is a legal professional available to take your call today.

Contact us using the button below, or call/text (480) 924-4424.

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