You may have decided to create a trust as part of your estate plan. But if you have no experience with trusts, you might not realize that the kind of control you will have over your trust depends on the kind of trust you create. While many trusts exist, generally they fall into one of two categories, a revocable trust or an irrevocable trust.
As a trust creator or a “grantor,” you should consider what you want most from your trust. Knowing what makes a revocable trust different from an irrevocable trust may help you to choose what best fits your needs.
You may want to exercise as much control as possible over the assets you place in a trust. You might have concerns the person you name as your trustee could abuse the position, perhaps pocketing some of the trust assets or refusing to distribute them as you wish. You would likely want to remove the trustee if this were to happen. You may also want to control where the assets will go and be able to change beneficiaries as you wish.
A revocable trust allows you as a grantor to maintain firm control over the trust. You may even take direct charge of the trust by serving as the trustee. Using a revocable trust for some of your assets can also help them avoid probate.
The downside of revocable trusts is that they do not avoid certain taxes. You might incur taxes on money you derive from your revocable trust. Estate taxes also apply to revocable trusts. If you seek to minimize the tax liability of your estate, you may instead go with an irrevocable trust.
While you can avoid specific taxes, you also no longer own assets that you transfer to an irrevocable trust. Once you make the transfer, you cannot undo it, or at least, freeing your assets from the trust may entail a lengthy legal process. So setting up an irrevocable trust means you will lose a lot of control over whatever you place in it. Still, if you appoint someone you know and trust as a trustee, such as a son or daughter, you may retain significant influence over the trust.