What’s the Difference between Revocable and Irrevocable Trusts?

November 28, 2022

What’s the Difference Between Revocable and Irrevocable Trusts?

A trust is a type of account for your assets. Most commonly employed as an estate planning tool, it is governed by specific rules and agreements. A third party, called the trustee, oversees the account and manages or distributes the assets according to the rules you establish for the trust.


Typically, you place assets in a trust to distribute them to your beneficiaries. For example, you can create a trust for your heirs if they are still minors, with directions to distribute the assets to them when they reach adulthood.


Technically, you transfer ownership of the assets to the trust. However, you can retain some control over the account depending on the type of trust you choose.


These accounts fall into two categories: revocable and irrevocable trusts. Both types hold assets, and a trustee manages them. However, one vital difference exists: you can easily change one variety, while the other has fixed terms you cannot alter without court approval.


Here is a closer look at how to use revocable and irrevocable trusts in Centennial, Colorado.


Why Should You Use Trusts?

Trusts are an estate planning tool. Why would you use them instead of simply writing a will?


With a trust, you can give the assets directly to the heir, meaning you avoid confusion when reading the will, and they are not subject to the probate process.


Unlike a will, a trust goes into effect as soon as it gets created. This feature could be useful if you become incapacitated but are still alive or cannot make decisions for yourself because of a medical condition, such as Alzheimer's.


Also, because trusts go directly to your heirs, they can be effective in avoiding estate taxes.


Finally, the assets in your estate are subject to taxes, and any outstanding taxes or debts get removed before the distribution of the remaining wealth. Furthermore, creditors cannot collect from assets contained in a trust. However, this protection is only available for irrevocable trusts.


What Are Revocable Trusts?

Revocable trusts are accounts for your wealth. A trustee manages the assets, and the benefactor establishes rules to govern the trust. If you are the benefactor, you can change this trust or cancel it at any time. In addition to altering the rules of the trust, you can add or withdraw assets, add or remove beneficiaries, or remove all the assets and close the trust.


These actions have only one requirement: you must be competent when making changes to the revocable trust. Typically, competence means having a rational and factual understanding of what you are doing.


Revocable trusts offer the flexibility to make changes during your lifetime. However, they become irrevocable when you pass away. After your death, the trust cannot change.


There is one significant disadvantage to revocable trusts: creditors can pursue the funds and assets in this type of account to cover outstanding debts you had at the time of death. If you want debt protection, you need to establish an irrevocable trust.


What Are Irrevocable Trusts?


Irrevocable trusts have the same features as revocable trusts. When you establish an account and deposit your assets, you transfer ownership to the trust. A trustee manages the assets according to your rules, and the beneficiaries access or receive the assets according to the rules you establish governing the trust.


The more important feature of irrevocable trusts is that they are extremely difficult to change once established. You can alter these trusts, but any changes require the approval of all named beneficiaries and the trustee. You can also go to court and try to get a judge to approve the changes. This typically requires presenting a legal argument about why the changes are necessary.


Irrevocable trusts have one significant advantage. Creditors cannot pursue the assets in these accounts as payment for outstanding debts, meaning all the wealth contained in these trusts goes to the beneficiaries.


The lack of flexibility is a drawback, so you must be certain about your beneficiaries and allocation of assets when establishing this type of trust.


Which Type of Trust Is Best for Estate Planning in Centennial, Colorado?


An estate planning attorney can review your needs and help you decide which type of trust is best for your situation.


If you want to retain control over your assets and estate, a revocable trust is a better option.

  • If you plan to accumulate more assets for your estate, you can select a revocable trust.
  • If you expect your family to grow with more children, grandchildren, or other dependents, a revocable trust makes adding more beneficiaries simple.
  • If you do not have excessive debts, you may not need the protection of an irrevocable trust.
  • If you do not have a high-value estate, you will not need the tax protections of an irrevocable trust. Currently, federal taxes only cover estates worth more than $12.9 million . If your estate is worth less than this threshold, you can enjoy the flexibility of a revocable trust without needing tax protections.


If you need specific protections against estate taxes or debt collectors, then an irrevocable trust is a better choice. In some cases, an irrevocable trust can reduce the value of your estate so that it falls below the federal threshold.


Irrevocable trusts are also a good option if you do not want the trust changed for any reason. You could have personal reasons for creating this type of trust.


Do You Need an Attorney to Establish a Trust in Centennial, Colorado?

An estate planning attorney can help you select the correct trust for your needs and financial goals. They can also help you create the rules governing the disbursement of assets in the trust. For example, you may want to add requirements related to the age, education, or marital status of the beneficiaries. An attorney can help you choose the language to ensure these desires are met before the beneficiary can access the assets.


Contact our estate planning lawyers today if you need assistance establishing a trust.

Consequences of Dying Without a Will in Colorado

February 12, 2025
Consequences of Dying Without a Will in Colorado

What Types of Assets Can Be Included in a Colorado Trust?

January 30, 2025
What Types of Assets Can Be Included in a Colorado Trust?

What is a Guardianship and When Do I Need One?

December 2, 2024
What is a Guardianship and When Do I Need One?

What Are the Required Documents to Create a Will in Colorado?

October 28, 2024
What Are the Required Documents to Create a Will in Colorado?

Probate in Colorado: A Guide for Families and Executors

October 1, 2024
Dealing with the death of a loved one is never easy, and navigating the legal process that follows can add stress during an already difficult time. In Colorado, probate is the legal process by which a deceased person’s estate is administered, their debts are paid, and their assets are distributed to beneficiaries. Whether you’re an executor, beneficiary, or family member, understanding how probate works in Colorado can help you anticipate the steps involved and your potential responsibilities. This blog post will provide an overview of the probate process in Colorado, outline when probate is necessary, and offer guidance on how to navigate the system effectively.  What is Probate? Probate is the legal process that occurs after someone dies to ensure their assets are distributed according to their will or, if there is no will, according to state law. The probate process includes validating the will, inventorying the deceased’s assets, paying off debts and taxes, and distributing the remaining assets to the rightful heirs. While probate is often associated with lengthy court proceedings, not all estates require formal probate. Colorado offers several options depending on the size and complexity of the estate, which can help simplify the process in many cases. When is Probate Necessary in Colorado? Probate is not always required in Colorado. Whether an estate must go through probate depends on the types and value of the deceased’s assets. Generally, probate is necessary if: The deceased owned real estate solely in their name. The deceased’s assets, such as bank accounts or investments, were not held in joint tenancy or designated to transfer on death. The deceased had personal property valued at over $74,000 (as of 2023). If an estate falls below this threshold and does not include real estate, the beneficiaries can often use a Small Estate Affidavit to claim the assets without going through probate. Types of Probate in Colorado Colorado has three main types of probate procedures: small estate procedures, informal probate, and formal probate. The type of probate required depends on the estate’s value and whether there are disputes among heirs or creditors. Small Estate Procedure (Collection by Affidavit) The small estate procedure can be used if the value of the deceased’s assets is less than $74,000 and does not include real estate. This process involves filling out a Small Estate Affidavit, which allows the heirs to collect and distribute the assets without opening a probate case in court. It is the simplest and fastest way to handle a small estate. Informal Probate Informal probate is used when there is a valid will and no disputes among heirs or creditors. The process is overseen by a court-appointed Personal Representative (executor), but there is minimal court supervision. Most of the process, such as distributing assets and paying debts, is handled by the Personal Representative, with only basic filings required with the court. Informal probate is less time-consuming and costly than formal probate. Formal Probate Formal probate is required when there are disputes regarding the will’s validity, disagreements among heirs, or if the estate is complex and needs court intervention. The process is supervised by the court, and all major decisions, such as approving the distribution of assets, must be approved by a judge. Formal probate can take much longer and involve more legal fees than informal probate. Steps in the Colorado Probate Process While the specific steps in probate can vary depending on the type of probate and the complexity of the estate, the general process in Colorado typically includes the following: Filing the Probate Petition The process begins with filing a Petition for Probate with the appropriate Colorado probate court. The petition is usually filed by the executor named in the will or an interested party if no will exists. Appointment of the Personal Representative The court will appoint a Personal Representative (executor) to manage the estate. If there is a valid will, the person named as executor is typically appointed. If no will exists, the court will appoint someone, usually a family member, to serve as the Personal Representative. Notice to Heirs and Creditors The Personal Representative must notify all potential heirs and creditors of the probate proceeding. This step is essential for providing an opportunity for interested parties to come forward and make claims against the estate. Inventory and Appraisal of Assets The Personal Representative must create an inventory of all the deceased’s assets and have them appraised if necessary. This inventory will include real estate, personal property, financial accounts, investments, and any other assets owned by the deceased. Paying Debts and Taxes Before distributing assets, the Personal Representative must pay off the deceased’s debts and any taxes owed. If the estate does not have enough assets to cover all debts, Colorado law dictates the order in which creditors are paid. Distribution of Assets Once all debts and taxes have been paid, the Personal Representative can distribute the remaining assets to the beneficiaries according to the will or, if no will exists, according to Colorado’s intestacy laws. Closing the Estate After all assets have been distributed and all required filings have been made with the court, the Personal Representative can file a Petition for Final Settlement to close the estate. Once approved, the Personal Representative’s responsibilities are complete. Challenges and Disputes in Colorado Probate Unfortunately, probate can sometimes become contentious, especially in cases involving high-value estates or when family members disagree on how assets should be distributed. Some common challenges in Colorado probate include: Will Contests Heirs or beneficiaries may challenge the validity of a will, claiming it was signed under duress, there was undue influence, or the deceased lacked the capacity to create the will. Will contests can significantly delay the probate process and require formal probate to resolve. Executor Misconduct If an executor is not fulfilling their duties or is mishandling estate assets, beneficiaries can file a complaint with the court and request the executor’s removal. Disputes Among Beneficiaries Disputes can arise over specific bequests, how assets are divided, or even the valuation of estate property. Mediation or formal court intervention may be necessary to resolve these disputes. How a Colorado Probate Attorney Can Help Navigating the probate process can be overwhelming, particularly when dealing with the emotional aftermath of losing a loved one. An experienced probate attorney can help in several ways: Guiding You Through the Process An attorney can explain the probate process, help you understand your rights and responsibilities, and ensure all legal requirements are met. Managing Court Filings and Deadlines Probate involves numerous legal documents and deadlines. An attorney can handle these tasks, ensuring that everything is filed correctly and on time. Resolving Disputes If disputes arise, an attorney can provide representation in negotiations, mediation, or court hearings to protect your interests and work toward a fair resolution. Minimizing Costs and Delays With the guidance of a skilled attorney, you can often minimize the time and expense associated with probate, helping ensure the process goes as smoothly as possible. How The McKenzie Law Firm, LLC Can Help At The McKenzie Law Firm, LLC, we understand the complexities of the probate process and are committed to helping families navigate it with compassion and expertise. Whether you’re an executor needing assistance with your duties or a family member looking to understand your rights, our experienced probate attorneys can provide the support you need. If you have questions about probate in Colorado or need legal assistance, contact us today to schedule a consultation. We are here to guide you through the process and ensure your loved one’s wishes are honored.

Understanding the Notice to Creditor Form in Colorado Probate: Pros and Cons

By Dan McKenzie • September 10, 2024
Explore the pros and cons of mailing Notice to Creditor forms in Colorado probate. Learn how this decision impacts estate administration and creditor claim periods.

Understanding Special Needs Trusts in Colorado

August 30, 2024
Understanding Special Needs Trusts in Colorado

Protecting Your Legacy: Beneficiary Deeds vs. Life Estates in Colorado

By Dan McKenzie • July 17, 2024
Explore the differences between beneficiary deeds and life estates in Colorado estate planning. Learn the pros and cons of each method for transferring property and avoiding probate, and discover when to use each option for your unique situation.

The Importance of Estate Planning in Colorado

July 16, 2024
The Importance of Estate Planning in Colorado

A Guide to Forming an LLC in Colorado

June 30, 2024
A Guide to Forming an LLC in Colorado
More Posts
Share by: