Differences between Revocable and Irrevocable Trusts

Trusts come in different forms, addressing specific requirements. The two main categories they are divided into include revocable and irrevocable. Both of these are living trusts, which means people create them during their life.
We’ll take a deeper look at the topic at hand so we can understand what differentiates revocable and irrevocable trusts in New York. This will enable you can be better equipped when figuring out your estate planning needs in New York.

Revocable Trusts

These types of living trusts describe estate planning documents with terms suitable for alteration at any time as long as the grantor is alive. The change could be choosing another person as the beneficiary for a certain asset, adding or removing properties or making changes to how you want the assets to be distributed.

It’s possible that with time and life changes, your existing trust doesn’t suit your needs. If that’s the case, you can contact your estate planning lawyer in New York to scrap it. The goal was to come up with a plan that serves its purpose. You have the choice to undo the trust if it isn’t the right fit anymore.

Advantages

1. These trusts can be effective in avoiding probate. It takes a big load off of your family in their time of grieving.
2. Revocable trusts allow people to put their wishes on paper. These include instructions pertaining to asset distribution or about incapacity planning. This can be a relief if there is family history of incapacitating disorders like dementia.
3. Flexibility to change the trust’s terms makes a big difference between revocable and irrevocable trusts in New York. You can remove heirs, add assets, and change other instructions without a hitch.

Disadvantages

If you have a revocable trust, the estate you own is still basically your “personal asset”. The drawback is that it doesn’t protect you from creditors, getting you sued for liabilities. Also, assets under the trust’s name can be subject to State and Federal estate taxes after you pass away.

Revocable trusts still remain a popular tool used for estate planning in New York due to their advantages.

Irrevocable Trusts in New York

Irrevocable trusts in New York are set up when the grantor is still alive. In terms of what can be funded into the trusts, it’s similar to its revocable counterpart. However, the main difference between the two is that the irrevocable trusts are not forgiving when it comes to making changes.

Once the documents are signed and the trust is funded, the grantor can’t really make an adjustment (for the most part). What that means is that once you’ve named beneficiaries and added assets to the fund, you can’t change your mind about them.

It might be possible to revoke irrevocable trusts in New York. The Estate Powers and Trust Law Section 7-1.9 mentions the possibility of revocation if all beneficiaries involved are in agreement. The parties involved should be adults and competent when the amendment/revocation is made.

Advantages

• Tax benefits are the main motivators for people choosing irrevocable trusts. The main one being the assets’ ownership under the trust’s name; i.e. they are not in your own name. What this means is that the assets will be removed from taxable estate upon your passing.
• The ownership of the estate belongs to the trust. It becomes a shield, protecting you from potential lawsuits. Any estate funded in the trust will be safe from coming under fire.
• Irrevocable trusts can lower taxable income. This can be beneficial for seniors and beneficiaries with disabilities, dependent on government aid programs.

Disadvantages

The limitation on making changes is the main concern with irrevocable trusts in New York. Once the trust has been funded, you can’t really change anything until the involved parties give you have a green signal.