Revocable Trusts and Irrevocable Trusts
Trusts can either be revocable or irrevocable. Each trust generally sets forth a provision which enables the Trustor to revoke the trust on the happening of one or more events. In a Revocable Trust, this revocation can occur at the will of the Trustor. Anytime the Trustor decides to revoke the Trust, he/she can.
Irrevocable Trusts are those which cannot be revoked after they are set up. It is only with great care that irrevocable trusts are established, since once it is created, the Trustor deliberately gives up control over the revocation of the Trust.
Why would anyone agree to give up direct control over certain assets and agree that once placed in a Trust the trust cannot be revoked? There are many reasons for this, not the least of which are often Internal Revenue Code provisions that dictate certain requirements for trusts in order to be recognized for special income tax treatment. Also, state laws often have certain requirements with respect to trusts and the irrevocability thereof, such that probate might be avoided in some circumstances.
Realistically, there are many reasons for setting up trusts, and it is advisable before you establish a trust to examine the options and the requirements with a lawyer knowledgeable in this area. Only then can you make the right choice.
Trusts involve continuous work each year of their operation
One of the most forgotten aspects of trusts is that they require that a person or persons perform work in many instances each year. For example, some person must complete the change of title to each piece of property, notify insurance companies of such changes, change the bank accounts, register the change in securities and a number of other tasks. Each year after, the trust must file a separate federal and sometimes state tax return, or at least a special schedule to your tax return. An accounting of profits and losses must be performed. Make sure that the value of the assets is significant to merit the expenditures which will be incurred each year.
If you have any questions about creating a trust or to see if it is the right way distribute your property, contact member services to speak to an attorney.