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Characteristics of revocable and irrevocable trusts

Gregory A. Lang

Some heads of households in Minnesota may utilize living trusts to establish specific terms for inheritances while still alive and circumvent the future need for costly probate hearings. Living trusts can be classified as either revocable or irrevocable. Their opposite names serve as an indicator of their substantial differences, an advanced understanding of which can be useful when first consulting an attorney or financial advisor on the topic.

With a revocable living trust, a grantor retains the freedom to revise or remove provisions until death, and any assets considered under the trust are accessible to the grantor. This leaves considerable flexibility in asset distribution decisions while the grantor lives. An owner of multiple properties outside of his or her home state can consolidate any probate hearings for those homes to a single jurisdiction with a revocable trust as well.

Conversely, a grantor who signs an irrevocable trust relinquishes the right to alter the trust further. A key advantage of an irrevocable trust is the protection that listed assets gain. Wealthy households can set assets above state and federal estate tax thresholds within an irrevocable trust to avoid their inclusion into the tax figures, and these funds are also inaccessible to creditors.

Attorneys who handle issues of estate planning may provide important guidance to individuals looking to set up trusts for future generations. One client may benefit from being able to take money from a revocable trust to help with sudden debts while another may find that an irrevocable trust can bring a substantial reduction in tax obligations. Earnings reports for a client's business and personal credit history reports are two types of financial records that an attorney might analyze to advise an optimal course of action.

Source: NBR, "A matter of trusts: Benefactors, heirs and their advisors", Maureen Niven, August 04, 2014

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