What state you live in makes a difference in what type of trust you choose. Some states don’t charge high taxes on revocable trusts, and Indiana is one of those states. Three of the main factors that a grantor must consider when choosing between a revocable and irrevocable trust are flexibility, tax benefits and creditor protection. Each of these issues can vary between the two types of trusts.
Flexibility in revising
Revocable trusts are more flexible to modify than irrevocable trusts because the grantor can revise their trust whenever they want. Grantors can only revise an irrevocable trust with permission from its beneficiaries. You should seek legal advice on establishing a trust to reduce the chances that you’ll regret the choice years later. A lawyer may inform you of details that you might not know yet.
You may not receive as many tax benefits with a revocable trust. The federal estate tax applies to estates of $22.8 million for couples filing jointly and $11.4 million for single filers. Indiana doesn’t charge estate or inheritance taxes at the state level. The state had an inheritance tax in the past but repealed it in 2013.
Assets that are in your name are vulnerable to creditors. For this reason, irrevocable trusts feature creditor protection. Creditors will have a more difficult time collecting their debts from an irrevocable trust. In some cases, they’re not able to touch it.
Which type of trust you set up depends on how important the ability to modify it is to you. The federal tax benefit loss isn’t significant and might not even affect your estate, so you’ll want to work with a financial advisor and an estate lawyer to choose the right type of trust for your situation.