Estate planning is an important part of preparing for your future. As a resident of New Jersey, you may want to create a trust to protect your assets and property as well as prevent the need to go through probate. You should know the differences between revocable and irrevocable trusts to decide which one is better for you.
What is a revocable trust?
Through the estate planning process, you can choose to set up a revocable trust. It’s also commonly known as a living trust. The grantor can change this type of trust at any point as they see fit, and they can determine how the assets put into the revocable trust can be handled or removed. A revocable trust is usually set up to hold assets to pass down to a person’s children. Someone watches over it until the individual dies. Revocable trusts offer the following benefits:
- They can ensure your wishes are fulfilled in the event that you are unable to make decisions for yourself.
- They help you avoid going through probate.
- They can hold qualified assets.
What is an irrevocable trust?
An irrevocable trust is set up through estate planning as a trust that cannot be changed once it’s established. The grantor gives up their legal rights to any assets that are placed in the trust. Often, a person chooses an irrevocable trust when they have debt and limited resources. With this type of trust, a creditor cannot claim any assets that are placed in it. Irrevocable trusts offer the following advantages:
- They have certain tax benefits. If assets are held in an irrevocable trust for many years, they are not subject to estate taxes.
- They can protect a person against creditors.
Should you choose a revocable or irrevocable trust?
Whether you decide to create a revocable or irrevocable trust depends on your needs. Both have notable benefits, but if you want to plan for incapacity, a revocable trust would be the better option. If you’re more interested in avoiding creditors who want to take your assets to satisfy debt, you might prefer creating an irrevocable trust.
Weighing out the options of both types of trusts is important. Which one you choose depends on your goals, so it’s important to determine what you want to achieve with estate planning.