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Unlike a testamentary trust, which will
only take effect after one's death, a living trust is a trust which
takes effect in your life and after your death.
There are two types of living trust, revocable and irrevocable. A
revocable living trust can be at any time terminated or revoked by the
grantor (a person who creates it). Majority people set up revocable
living trust to avoid probate and to minimize the estate taxes. Some
create
special needs trust for the welfare of their disabled heirs while
others do it to protect their family business.
Irrevocable living trust, on the other
hand, does not allow the grantor to alter or revoke. Setting up a
revocable trust is similar to transfer the ownership of assets to other
party. People setting up irrevocable living trust to provide
sustainable income to their heirs. Usually, the assets will eventually
go to charity upon demise of their heirs.
Revocable Living Trust vs Irrevocable
Living Trust - What are the differences?
Asset protection. Your assets in irrevocable living trust are well
protected. You no longer have any rights on the assets. All the assets
used to fund the trust are now solely managed by an independent
trustee. Virtually, nobody wants to sue you. If they do, the assets in
the trust are not liable. Meanwhile, the assets in revocable living
trust are liable to lawsuits because the grantor is deemed to own the
assets. Hence, the assets are not protected.
Reduce capital gain taxes and income
taxes. As assets in irrevocable living trust are no longer owned by
the grantor, they are no longer subject to capital gain and income
taxes, but not in the case of revocable living trust.
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