Revocable vs. Irrevocable Living Trusts – Which Trust Is Right for You?
When it comes to understanding trusts, knowing the difference between revocable and irrevocable trusts is crucial. If you ask for a revocable trust and get an irrevocable one, or vice versa, the legal and tax consequences will be significant.
The typical living trust is evocable and amendable by the grantor during his or her lifetime. During his or her lifetime, the grantor is also the trustee and beneficiary. As trustee, the grantor can manage and control the trust property. Upon death of the grantor, a successor trustee takes over as trustee and follows the trustor’s instructions concerning the distribution of property and payment of taxes and expenses.
With an irrevocable trust, it is an arrangement in which the grantor departs with ownership and control of property. Usually this involves a gift of the property to the trust. The trust then stands as a separate taxable entity and pays tax on its accumulated income. Trusts typically receive a deduction for income that is distributed on a current basis. Because the grantor must permanently depart with the ownership and control of the property being transferred to an irrevocable trust, such a device has limited appeal to most tax payers. The use of irrevocable trusts in sophisticated tax planning involves a multitude of complex tax rules. You should consult with a tax planning professional to obtain the optimal tax results.
For more detailed information, corporate trust services, or if you have any questions on determining which trust is right for you and your family, please contact an NCH representative today at 1-800-508-1729, Monday thru Friday, 8 am-5 pm PST.