For some Michigan residents, setting up a trust may be one of their New Year’s goals. One of the decisions that has to be made is whether the trust will be revocable or irrevocable, and this depends on the reasons for setting up the trust in the first place.
The Federal Deposit Insurance Corporation states the biggest difference between the two types of trusts is one can be modified or canceled by the grantor, while the other cannot. In a revocable trust, the owners of the deposit account names beneficiaries for the account amount upon the owner’s death. The trust can be changed at anytime by the owner. With an irrevocable trust, the owner can deposit money or other assets into the trust, but gives up the ability to change or cancel the trust.
When making the decision about which trust to have, US News says it comes down to how much control you want to have. Generally, a revocable trust has fewer benefits but the owner has more control. If done correctly, an irrevocable trust has more benefits later on.
One of the main reasons for setting up a revocable trust is to give someone direction as to how the assets should be distributed or administered once the owner can no longer manage their affairs. This helps with estate planning and keeps things more private.
One of the main benefits of an irrevocable trust is tax advantages, however this usually only applies to those who are very wealthy. This type of trust also shields the owner from asset liability. Because they are costly and complex to maintain, an irrevocable trust is only recommended in certain situations.