What are the differences between a revocable and irrevocable trust? Many seniors planning for the future may want to place their home in a trust for their children. This is especially true if the house is paid off, and free and clear of a mortgage. However, what would happen if the home were placed in a trust and the senior then decides to sell it?
Nj.com’s recent article entitled “Can I sell my house after I put it in a trust?” explains that there are two primary types of trusts: revocable and irrevocable. In this situation, placing the home in a revocable trust may be a wise option. The assets in a revocable trust avoid probate but stay in the grantor’s control. That is because you can always change the terms of the trust or terminate the trust. With a revocable trust, the terms can be altered or canceled dependent on the grantor (also known as the trustmaker, settlor, or trustor) of the trust.
During the life of the trust, income earned is given to the grantor, and only after death does property transfer to the beneficiaries. A grantor can be the trustee. In that way, the grantor is still able to live in the home and sell it and dispose of it as they want upon death.
Assets in a revocable trust are available to creditors and are subject to estate taxes upon death.
In contrast, an irrevocable trust cannot be changed or altered once it is established. In fact, the trust itself becomes a legal entity that owns the assets placed in it. Because the grantor no longer controls those assets, there are certain tax advantages and creditor protections. An irrevocable trust is best used for transferring high-value assets that could cause gift or estate tax issues in the future.
Trust are very complicated, so in any situation consult with an experienced estate planning attorney, such as Vick Law, P.C., about whether to use a trust and to make certain that you create the best trust for your needs.
Reference: nj.com (Feb. 25, 2022) “Can I sell my house after I put it in a trust?”