 Personal Finance Powerpoint Presentation Revocable Trust vs. Irrevocable Trust Prepare to get financially fit by practicing personal finance Support Accounting Instruction by clicking the link below Giving you a free month membership to all of the content on our website Broken Out by Category Further Broken Out by course Each course then organized in a logical, reasonable fashion Making it much more easy to find what you need than can be done on a YouTube page We also include added resources such as Excel practice problems PDF files and more Like QuickBooks backup files when applicable So once again click the link below for a free month membership to our website and all the content on it Most of this information comes from Investopedia Revocable Trust vs. Irrevocable Trust What's the difference? Would you define all along? Take a look at the references Resources continue your research from there This fact, Reg, DeHarsio updated April 13, 2022 In prior presentations we've been looking at a state planning Then focusing in on particular tools And parts of a state planning Which might be applicable depending on your personal situation This time that being the Revocable Trust and the Irrevocable Trust A Revocable Trust and Living Trust are separate terms that describe the same things A trust in which the terms can be changed at any time An Irrevocable Trust describes a trust that cannot be modified After it is created without the beneficiary's consent So a trust in general we might think about as something similar to like a corporation And that it's kind of like its own separate legal entity That has characteristics that we generally apply to an individual Such as the capacity to own property And the trust might be able to live beyond the depth of any one individual Which makes it something that could be useful for things like a state planning The line that we often have to walk depending on what we're trying to do with the trust Is whether or not the person that's using the trust has lost control Say of the assets that they put into the trust Or if they still have control over it Because that can have some implications in terms of the state planning Remember one of the state planning goals that we might have Might be to make it a little bit easier to go through probate So if we think about the timeline of a state planning Before we die we want to make it as easy as possible For our loved ones to be allocating the assets And try to allocate those assets in accordance with our wishes And possibly be lowering the estate taxes But the will has some issues with it In that it might still have to go through probate for example So we might set up say a trust That's the only reason we might set up a trust To make it easier to go through that process That might make the probate kind of process easier to bypass that process We might also set up a trust That could help with the state planning Between the married couple For a married couple's situation And we also have a situation for the state taxes Where you have the gift tax And the state tax or the gifts And the state taxes are kind of tied together Because if they're going to tax someone When you die Then obviously what you would do then Is give all your money away on your deathbed And in order to stop that Then they have to have some rules on gifts That are tied to estates So you can also imagine situations Where people are trying to give away money To the extent that they can To avoid the estate taxes But the trusts need to be set up in such a way That if they still control the trust If they still control the money You would think that the law wouldn't allow them to do that Because they still have control of it Even though it's in a trust Whereas if they don't have control Over the money for example Then you would think you might have more capacity To alleviate the estate tax Or something like that So those are just some ideas to keep in mind When you're thinking about trusts in general And walking this line Between being able to revoke the trust And not being able to revoke the trust And why that might be necessary In say a state planning So a trust is a separate legal entity A person sets up to manage their assets Trusts are set up during a person's lifetime To ensure that assets are used in a way That the person setting up the trust Deals appropriate Once assets are placed inside a trust A third party known as a trustee Manages them So we can set the money into trust And then you have to do the set of the trustee That's going to be managing or delegating that money The trustee determines how the assets Are invested and to whom They are distributed When the trust owner dies Though a trustee must manage the trust Following the guidelines laid out When the trust was formed So it is common for a wealthy person To use a trust instead of a will For a state planning And stipulating what happens To their wealth upon their debt So when you're setting up Before debt You're thinking about a will That makes things as easy as possible At the point of debt To be able to allocate the assets Before a larger year a state is Of the more assets that you have The more life it might be useful then To set up tools such as a trust So trusts are also a way to reduce Tax burdens and avoid assets Going to probing So revocable trust and living trust So the two basic types of trust Are a revocable trust Also known as a revocable living trust Or simply a living trust And an irrevocable trust The owner of a revocable trust May change its terms at any time So they can remove beneficiaries Designate new ones and modify Stipulations on how assets Within the trust are managed So they have control If it's revocable You still have control to go in there And change things to some degree A large degree Given the flexibility of revocable Or living trusts in contrast With the rigid rigidity Of an irrevocable trust It seems all trusts should be revocable So you might say Why would I do anything else? I want to have control over The capacity to change things In the trust, right? But again, there could be Other circumstances such as tax circumstances Which made people on the state planning To try to have more less control Within a trust However, there are a few key disadvantages To revocable trust Because the owner retains Set the level of control Over a revocable trust The assets they put into it Are not shielded from predators The way they are in an irrevocable trust So you might think of that As kind of a liability protection Kind of component Which might be similar to Like a corporate shield Or something that you can kind of compare Be comparable to that So if they are sued The trust assets can be ordered liquidated To satisfy any judgment put forth When the owner of a revocable trust dies The assets held in trust Are also subject to state and federal Estate taxes So again, another big component Once again, with the owner of a revocable trust The one that you can change The assets held in trust Are also subject to state and federal Estate taxes The death tax So when you die If the beneficiaries of a revocable trust Are young, not of legal age And the minor real estate assets Are held within a trust It can replace the need To acquit a guardian Should the grantor die So in that case you're saying Okay, you're leaving safe property To a child A child is under age So you might have some problems With them being able to own the property Which could then require you to have A guardian Possibly the trust being set up properly Could help in that situation In addition If a grantor names beneficiaries Who they deem unreliable with money The trust can set aside a specific amount To be distributed at reoccurring Intervals Or when they come of age If they are minors So you can also set up the trust and say I don't trust this individual with money Possibly because they are a minor Or possibly because they're not that great Managing money So maybe you can set up the terms Of the trust So that it pays them periodically Rather than Or it pays them the money When they hit a certain age For example So irrevocable trust The terms of an irrevocable trust In contrast Or set in stone The minute the agreement is signed Except under exceedingly rare circumstances No changes may be made To an irrevocable trust That's the point So now the person that has set up The irrevocable trust Does not have the same kind of control That they have over the irrevocable trust The main reason to select An irrevocable trust Structuring these taxes So once again I'd say if I'm alive Why would I set something up That's going to give me that much restriction Over the assets that I currently have Controlled over And one of the reasons could be the taxes Because remember When you're talking about a debt tax Or an estate tax You're talking about the accumulation Of the assets at the point of debt That are going to be taxed At that point in time Which is typically something Of more concern For people that have Fairly large Estates Fairly large amounts of assets Then What that would incentivize The tax payer to do Is try to give all the money away On their desk Which of course The IRS would like So the IRS is going to try To commingle laws With how much money You can give away To And commingle that With the estate tax So one way You can quote Give away And quote Your money So it's not such a cost Like to be a estate tax Or to try to give it to a trust But If you still have control Over the trust Then the IRS Of course Will arguably Give it away Because you still have control Over the trust So that's where this Kind of walking back And forth line Of irrevocable trust And revocable trust Always comes into play With like Estate planning For example So irrevocable trust Removes the benefactors Taxable estate Assets Meaning they are not Subject to Estate tax Upon debt They also relieve The benefactor Of tax responsibility For any income Generated by the assets Irrevocable trust Will be difficult to set up And require the help Of a qualified trust attorney So clearly If you're setting up An irrevocable trust The nature of it Being irrevocable And the nature of it Being tied To estate planning needs It's going to be something That typically Will be done By more well off Individuals Offered subject To estate taxes And that you want To make sure You're putting Sufficient time And effort in A profession Where you may be At risk for lawsuits Such as a Medical professional Or lawyer And irrevocable trust Could help To protect Their assets When assets are transferred Whether they are Taxable or property To the ownership Of an Irrevocable trust It means the trust Is protected From the creditors And even legal judgment However An irrevocable trust Is a bit more complicated To set up Than an Irrevocable trust Namely because It cannot be altered There are some key differences There are some key differences Between a revocable And an Irrevocable trust Beyond that A revocable trust Can be altered But an Irrevocable trust Cannot be changed A grantor Can also be The trust With a Revocable trust But not so With an Irrevocable trust So privacy Is protected When an Irrevocable trust Is set up This means When the grantor Dies The information In the trust If you set up An Irrevocable trust Documentation Of the creation Of the trust May be recorded If the estate Goes through A probate Court Or another Legal proceeding A revocable trust Versus Irrevocable trust Examples Let us say An individual creates A revocable trust To benefit Their family And protect Their assets In doing so As the grantor Of the revocable trust They can also Name themselves The trustee In the assets In the trust And the beneficiary Of the trust When they get older They can go back Into the trust And name A new beneficiary And add A trustee To step in If they become Incapacitated In their more Senior years The trust Can be amended Several times Within the trustee's Lifetime Say if the trustee Emeries Or after The birth Of a grandchild When they pass Their trust is kept Out of probates And the stipulations In their trust Can be carried Out discreetly So that's One of the benefits Of this You got the trust set up Or managing the trust When they're Capable of doing A trustee Allowing someone else To manage In the elder years If necessary And then At the point of death Off the trust Because A separate legal entity Unlike a will Might make it easier To bypass Some of the probate Problems As well Which can be Caused By the kind of situation The court kind of situation At that point Which is usually there To verify the wills And the name The person that can be Allocated And accepted Or at that point So the disadvantages However Are it can be Causing A bright one up And even more Expensive If you make alterations Numerous times So clearly This is something That generally Will require A lawyer Whereas Just making A will Something The trust Must be funded And assets Must be moved Into the trust Which can also Be costly So now Let's say the same Individual creates An irrevocable trust To benefit Their family And protect Their assets Instead of Naming themselves The trustee And beneficiary The grantor Must designate A separate trustee And feel secure Giving up ownership And controlling Assets Such as Properties So now You don't have The control over it That's the point That's why you might Get relief On the estate planning Which is of course A risky thing to do Most people You know Well off People Well individual People that Earned a lot of money And are confident In their decision Making capacities Go like Giving up the control Of the money And that's where The tight loop Is walked Between a state planning And on these trusts I'm setting up The trust So they will now The grantor Who acts as an Oversight manager Of the trust Then They must name Beneficiaries Once assets Have been put into An irrevocable Trust Unlike a Revocable trust The grantor Now Must let it rest As they Cannot alter The trust Under certain Circumstances The inability To change The trust Makes An irrevocable Trust Potentially A risky endeavor In an Irrevocable trust And the grantor May not be able To access These assets Even if A life event Makes it Necessary So should I place My home In an Irrevocable trust If you place Your home In an Irrevocable trust You will keep it Away from Creditors And estate Taxes Due to the Legal setup Of the trust However Unless you Are worth Effort As estate Taxes Are levied On $12.6 million In 2022 So once again This is something That is For wealthy Individuals Oftentimes Most individuals Their home Is the The thing that It's going to be A substantial Part of Their assets And the Home Values Are quite Different Depending on Where you live So a fairly Different Other areas But still At this point In time $12.6 million Is a hefty A hefty part Of your Estate Before you hit The estate tax But note It was Like 5 Like 5 million Something Not too long ago And obviously It could change Just depending On political Circumstances So just Keep that in mind If you Place Your home In an Irrevocable Trust We have There are Typically Four parties Involved In an Irrevocable Trust You've got the Rancher The trustee Of the trust And the beneficiary Or beneficiaries Some Individuals May choose A trust Protector Who oversees The trustees What are The main Downsides Of Irrevocable Trusts And Irrevocable And Irrevocable Trusts And the expensive To draw up How Flex to Undo In the case of An Irrevocable Trust And costly To rewrite In the case Of Irrevocable Trusts It's very Difficult To resolve An Irrevocable Trusts And a Revocable Trust Doesn't necessarily