You may revoke or amend a revocable trust at any time during your lifetime. If your trust is irrevocable, however, you normally cannot revoke it without a court order, and may amend it only to the extent specifically provided for in the trust document that creates the trust. If the trust document fails to mention whether or not the trust is revocable, the laws of most states presume it is revocable. A major disadvantage of a revocable trust is, unlike an irrevocable trust, creditors can reach trust assets to satisfy your personal debts. Family trusts are often established as irrevocable trusts to prevent creditors from draining the trust of assets that would otherwise go to beneficiaries who are dependents of the trust grantor.
You may choose among two types of trusts: a living trust and a testamentary trust. A living trust takes effect while you are alive. The assets of a living trust are not subject to probate, allowing your beneficiaries to avoid the expense and delays of this process. When you die, your trustee can distribute trust assets in any manner authorized by the trust document, without waiting for permission from the probate court. A testamentary trust takes effect after you die and its assets are subject to probate. After probate closes, however, your trustee will enjoy the same freedom to distribute trust assets as the trustee of a living trust would.
The IRS and many state tax authorities may levy an estate tax on the total value of your estate at the time you die. This tax must be paid out of estate assets before any funds can be made available to your heirs. Most taxpayers don't have to pay the estate tax because it is levied only on the portion of the estate that exceeds a statutory minimum value, typically in the six figures. Assets that you place in an irrevocable trust are not considered part of your estate and, thus, not considered when determining whether or not your estate is liable for estate tax. If the value of your estate exceeds the statutory minimum, placing enough assets into a trust to bring your estate's taxable value below the statutory minimum can maximize the amount available to your heirs. Funding an irrevocable trust, however, can sometimes cause you to become liable for gift tax.
You can create a living trust by drafting and signing a declaration of trust that appoints a trustee, names beneficiaries and spells out how the trustee is to distribute trust assets. You might also attach an appendix that lists trust assets. When drafting the terms of the trust, you may take advantage of the significant flexibility that trusts offer. You might authorize your trustee to distribute trust assets to your beneficiaries all at once or in monthly installments, or invest trust assets and distribute only profits to your beneficiaries. You can create a testamentary trust by including in your will the same content that would appear in a declaration of trust.