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There are many tools that can be used to accomplish your estate planning goals. The trust is an incredibly flexible instrument that can accomplish a number of different purposes.
There are two basic types of trusts that practitioners use: inter vivos trusts and testamentary trusts. An inter vivos trust or “living” trust is set up during the person’s lifetime. A testamentary trust is established by will and does not go into effect until the person dies. Today we are going to look at the inter vivos trust.
There are two kinds of inter vivos trusts: revocable and irrevocable.
Revocable trusts are often referred to as “living” trusts. With a revocable trust, the grantor retains complete control over the trust and may amend, revoke or terminate the trust at any time. This means the grantor can take back the assets he put in the trust or change the terms of the trust after it is established. Thus, the grantor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to his death. Revocable trusts are used primarily to transfer assets after death without the cost or time associated with a probate proceeding and provide lifetime management of assets for the grantor.
An irrevocable trust is one in which the grantor has not retained the right to revoke the trust. Moreover, the terms of an irrevocable trust cannot be easily modified, amended or terminated. Since the grantor in an irrevocable trust has, effectively, transferred complete ownership of their assets into the trust, those assets are no longer part of the grantor’s estate. As such, irrevocable trusts are excellent vehicles for tax planning, asset transfer and asset protection. Of course, an irrevocable can also be used to avoid probate.