A trust is a long-term planning device that may be incorporated into the estate plan of a New York resident. Many individuals choose to set up revocable trusts, which as the name implies, can be terminated, changed and modified. Irrevocable trusts, on the other hand, are unbreakable once created and cannot be changed.
When a person creates a trust, they put into it property that is then no longer considered theirs. They may choose to manage the trust and may benefit from it, but upon their death, the property in the trust is transferred to another party by virtue of the trust instructions. When a trust is revocable, how and to whom these transfers are made can be modified. When a trust is irrevocable the original rules will control indefinitely.
There are advantages to using irrevocable trusts over revocable trusts. One of the biggest advantages is the tax savings a person may enjoy if the property they put into the trust appreciates. If the individual retained that property under their own ownership, they would likely have to pay capital gains taxes on the appreciation, but when the property is owned by the trust, the individual is relieved by that duty.
Before setting up a trust of any kind, a person should be aware of all of the legal issues that may affect their property and financial rights. This post does not offer any legal advice and encourages its readers to discuss their estate and trust planning questions with their attorneys. Revocable and irrevocable trusts serve different needs and individuals should be aware of what they are committing to when they create them as part of their long-term planning schemes.