Trust Issues: The Difference Between Revocable And Irrevocable Trusts

There are many advantages of a family trust. Assets, including real estate placed in the trust by the grantor, are subject to the trust document, not the grantor’s final will. The trustees can execute the trust document without waiting for the rest of the estate to go through probate. Some states have long probate periods. It depends on the laws in each state.

You may be wondering, “Can I set up a trust myself?” The short answer is “yes.” However, online forms and available software may not be compatible with the laws in your state. It is worth your time to speak with a trust administration lawyer. If you decide to set up a revocable trust, you remain in control of the assets until you die. On the date of your death, the trust becomes an irrevocable trust. The trust beneficiaries will have access to the house or real estate sooner than if they had to wait for probate.

One of the advantages of a trust in estate planning is that trust documents are tough to contest. Only beneficiaries can try to challenge the document. One of the benefits of having a trust is that the trust doesn’t have to terminate immediately after death. If your heirs are young, you may not want them to receive all the assets at once.

When you are inheriting a house in a trust, the first thing you’ll need to know is what kind of trust it is. Whether or not you are looking to sell your house fast, the tax regulations surrounding the property will impact you. Find out the differences between revocable and irrevocable trusts so that you know the next steps after inheriting a house in a trust.

Revocable Trusts

This type of living trust can be changed at any time. The grantor of the trust is able to alter the beneficiary of the trust with a trust amendment, or even undo the entire trust while they are alive if they wish. In a revocable trust, all assets transferred to the trust are considered the personal assets of the trust’s grantor. When the grantor of the trust dies, the assets that are held in the name of the trust may be subject to state estate taxes and federal estate taxes. They are beneficial in that any assets in revocable trusts avoid the probate process. Instead, the assets pass directly to the beneficiaries named in the trust. Skipping the probate process also means that the trust agreement remains a private document, rather than becoming a public record.

Irrevocable Trusts

In opposition to a revocable trust, irrevocable trusts cannot be changed by the guarantor after the agreement has been signed. After this trust has been formed and funded, it is set in stone forever. The grantor cannot take back any property placed into the trust or act as a trustee to manage the assets. The trust acts as its own entity so that any property in the trust is not technically in the estate of the grantor. This means that the property in an irrevocable trust will not be subject to any estate taxes. If you are inheriting a house in a trust that is irrevocable, you will only have to pay income tax.

Approximately 55% of adult Americans do not have a will or estate plan in place, leaving their assets in the wind after they die. By placing assets in a trust, beneficiaries receive the assets in a neat package and can then decide how they want to proceed. Whether you are selling an inherited home or you choose to keep it, knowing how the taxes will affect you is very important.