When creating your estate plan, you may wish to make use of one or more trusts. A trust can be very complicated, or amazingly simple. At its core, a trust is comprised of a grantor who creates the trust, a trustee who oversees the trust, one or more beneficiaries, and assets that are used to fund the trust. In many cases, the grantor, trustee and beneficiary position may be held by the same individual. While trusts come in many varieties and perform a wide array of functions, the two broad categories of trusts are revocable and irrevocable.
As indicated by the name, a revocable trust allows you, as the grantor, to terminate, amend or modify the trust at any time and for any reason. You may add or delete a beneficiary, amend the terms of the trust, or terminate it as you please. Additionally, a revocable trust is not required to pass through probate. Probate is the legal process used to inventory, value, and distribute estate assets upon your death. Avoiding probate allows assets to reach beneficiaries much sooner.
Although an irrevocable trust also allows you to avoid probate, it offers other advantages as well. An irrevocable trust offers asset protection and estate tax avoidance as well as capital gains tax and personal income tax advantages in some cases. In order to gain these additional benefits, however, you must give up the ability to terminate or make changes to the trust at a later point in time.