Adults should have an estate plan in place that outlines end-of-life decisions and what should happen with their assets when they die. Estate plans may have many components that all relay a creator's wishes.

Trusts are valuable estate planning tools that allow a creator to set terms based on what they feel is necessary. All trusts are classified based on what the creator can do to the trust itself after it has been funded. The two classifications are revocable and irrevocable. Each type serves distinct purposes and offers different benefits.

Revocable trusts

Some people prefer revocable trusts because they're rather flexible. The creator, formally known as the grantor, controls all assets held by the trust. They can change or even cancel the trust as long as they live. The assets are considered part of the grantor's taxable estate because they still control them.

Upon the grantor's death, the trust becomes irrevocable. The assets are then distributed to the beneficiaries based on the terms in the trust document, but they don't go through the probate process. This is a much more private option than passing assets through a will. It's also less time-consuming and less costly.

Irrevocable trusts

Irrevocable trusts don't allow the grantor to keep any control over the assets once the trust is funded. Instead, those assets are completely managed by the trustee placed over the trust. The terms of an irrevocable trust can't be changed without the beneficiaries' consent. Assets placed in an irrevocable trust are removed from the grantor's taxable estate, potentially reducing estate taxes.

Irrevocable trusts offer enhanced asset protection against creditors and legal judgments. Since the assets are no longer considered part of the grantor's estate, they are shielded from claims against the grantor.

Revocable and irrevocable trusts can play crucial roles in a comprehensive estate plan. By understanding the distinct features and benefits of each type of trust, individuals can make informed decisions about how best to manage and protect their assets for the benefit of their loved ones. Working with a legal representative who can offer specific trust suggestions to meet a person's needs is beneficial, as the creation process can be both complex and consequential.