This is the next post in the series on estate planning tools, where we explore the power of a revocable living trust.  The last post delved into the various benefits of an Oklahoma revocable living trust.  Not only it helps your loved ones save time and money by avoiding probate, but also allows the appointment of a trustee who can take over in case of incapacity.  Since the estate avoids probate proceedings, it preserves the privacy of your estate by shielding your affairs from the prying public eye.  There are various types of trusts that are created for specific purposes, but broadly speaking there are two types of trusts: living and testamentary.  A trust created during the creator’s lifetime is called a living trust while a trust created in one’s will is called a testamentary trust which becomes effective upon death.  A living trust can be further divided into two types: a revocable and an irrevocable – the differences of which we will discuss in this post.  If you or a loved one is in need of a revocable living trust, get in touch us with online or by telephone to contact an estate planning law firm and to talk with a wills and trusts lawyer.

A revocable living trust can be revoked or canceled anytime unlike the permanent nature of an irrevocable trust

Broadly speaking, there are two types of living trusts: revocable and irrevocable.  A revocable trust is one that can be amended, canceled, or revoked at any time after its creation.  This allows the creator to change beneficiaries, switch successor trustees, and even transfer assets to and from the trust.  Should you find the trust no longer serves your estate planning purposes, then you can completely cancel the trust instrument.  The ability to exercise control over assets, beneficiaries, and provisions makes the revocable living trust an attractive and versatile estate planning tool.  On the contrary, an irrevocable living trust cannot be canceled or changed after its creation.  The formation of such a trust is a one-way road, there is no going back or making changes.  After its creation and funding, you relinquish control over the assets.  Because of this, the trust asset practically leaves your estate and you no longer own them.  Such inflexibility makes it less attractive as an estate planning tool.  However, there is one upside – no ownership control over the property means that it’s no longer a part of your estate and therefore exempt from estate taxes.

A revocable living trust allows you to retain control over assets while an irrevocable trust does not

In the case of a revocable living trust, you are the creator (also known as a trustor or a settlor) who in many cases also acts as a trustee.  Despite the trust being the legal owner of the assets, you retain full control over them.  As a trustee of a revocable living trust, you can transfer assets to and from the trust, lease the trust asset, or use it in any way you would if you were the title owner.  However, this doesn’t mean that the trust creator is exempt from paying property taxes – you must still pay the property taxes as if you still own the property.  The control afforded by a revocable living trust over the trust property makes it an effective estate planning tool – helping you dispose of your estate upon death while still allowing you to enjoy ownership benefits while alive.  On the contrary, an irrevocable living trust is permanent.  Once it’s created, it is done. No changes to the assets, beneficiaries, or any terms are allowed.  In essence, after you create and fund an irrevocable trust, the asset leaves your estate entirely.  You are not the owner anymore and therefore have no control over it.  Because it removes certain assets from your estate thereby reducing the value of the estate, an irrevocable living trust is often used as a tax shelter for large estates.  As of the year this article is published, an individual owes federal estate tax only if the total value of their estate is more than $12.92 million.  This is why most Oklahomans or Americans do not have to worry about owing estate taxes upon death – eliminating the need for an irrevocable living trust for tax purposes.

Every case is unique.  A tool that’s appropriate for one person has no bearing on its effectiveness on another. Choosing between a revocable and irrevocable living trust depends on your individual estate planning needs and financial situation. A revocable living trust offers flexibility and control, making it suitable for many individuals. Conversely, an irrevocable living trust may provide tax advantages for those with larger estates.

If you or a loved one require assistance with setting up a revocable living trust or exploring other estate planning options, our dedicated team is here to help.  We will give your case the attention it deserves, review the facts, make proper suggestions, and help you execute one of the most important documents you will prepare during your lifetime.  No estates are too small or too large.  Get in touch with us by contacting us online or by telephone to contact an estate planning law firm to speak to a wills and trusts lawyer.  We proudly serve Oklahoma County, Logan County, Cleveland County, and Grady County.