There are many different use cases for creating a trust. Whether it be for inheritance/estate planning, minimizing tax on stocks and investments, or protecting your assets, trusts have a wide range of uses. However, in order to have these different advantages, your trust needs to be structured in a specific way.
There two main types of trust structures are revocable (living) trusts and irrevocable trusts. What’s the difference?
Structure and design:
Revocable trusts are different from irrevocable trusts in many different ways. First and foremost, they differ in the roles you fulfill within the trust itself. Revocable (living) trusts allow you to be the grantor, trustee and beneficiary during your lifetime. This means that you retain full access over your assets in a revocable trust even after they have been transferred into your trust. Also, as the name suggests a revocable trust can be changed during your lifetime. Beneficiaries, assets, successor trustees, and even milestones can be added, removed or made different in any way you prefer. The trust as a whole can also be dissolved in a very simple process.
On the other hand, if you are the grantor (creator) of an irrevocable trust, you cannot be the trustee of that trust. GetDynasty does offer Trustee services for your irrevocable Trust. Changing an irrevocable trust is also a difficult process that all parties to the trust need to agree to. They are not meant to be amended after they have been created. With that said, you lose direct control of the assets you place into your trust. You are relinquishing ownership of your assets to the trust thus providing some key benefits that we will discuss further below.
Asset Protection:
Asset protection from creditors and divorce is another key difference between revocable, living trusts and irrevocable trusts. Asset protection itself is a spectrum based entirely around how close you are to the assets in your trust. A revocable trust allows you to remain very close to your assets, in turn giving you very little asset protection. The added protection from a revocable trust lies in the fact that to get to your assets, your trust has to be pierced in court. This can act as a deterrent to someone suing you, but your assets remain largely unprotected. It would not be difficult to pierce a living, revocable trust in court.
Because you are not the trustee of an irrevocable trust, you are further removed from your assets and the ability to have immediate access to them. The irrevocable trust now owns your assets, not you, and your assets are much better protected from lawsuits, creditors, and divorce. In an irrevocable trust, you have permanently relinquished ownership of specific assets making them difficult and often impossible for creditors, lawsuits or other claims to get to in order to settle debts.
Tax Implications
A revocable, living trust with GetDynasty has zero tax implications for the assets that are placed into your trust. A revocable, living trust does NOT require a new EIN or Tax ID number during your lifetime. It uses the same EIN and Tax ID number as the grantor (creator) of the trust. Your Tax ID number is your Social Security number. Therefore, your social security number will be the EIN or Tax ID number on your living revocable trust with GetDynasty until you pass away.
On the other hand, an irrevocable trust can require you to apply for a new EIN or Tax ID number immediately if it’s a non-grantor trust. Assets in a non-grantor irrevocable trust are removed from your own personal taxable estate. This can reduce or eliminate estate taxes upon the death of the grantor of an irrevocable trust depending on the structure and intent of the trust.
Conclusion
Choosing between a revocable and an irrevocable trust depends on your specific needs, financial situation, and estate planning goals. A revocable trust offers flexibility and control, making it a popular choice for those who want to manage their assets during their lifetime while avoiding probate. On the other hand, an irrevocable trust provides significant tax advantages and asset protection but requires the grantor to relinquish control over their assets.
Still not sure which one is right for you? Send us an email at support@getdynasty.com and tell us how we can help you!
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