Trusts may be either revocable or irrevocable. The revocable trust can be terminated or altered and offers no special estate tax advantage. In other words, the assets of a revocable trust are included in the estate of the deceased creating the trust. It can, however, be written in such a manner as to substantially reduce the estate taxes of the beneficiaries. For example, a person placing property in trust for a son for life with a remainder interest to the grandson would skip one generation of estate taxes. Although a generation-skipping transfer tax may be imposed, the value of the property in trust would not be included in the son’s estate. The revocable trust, while offering no estate tax advantages to the grantor’s estate will, however, eliminate the cost of probate applicable to his trust property. The probate costs may include executor’s fees, attorney’s fees, court costs, and appraisal fees.
The irrevocable trust cannot be amended, altered, revoked, or terminated. The trustor cannot get his property back. Assets placed in an irrevocable trust are removed from the estate of the person creating it. It is, therefore, useful in estate planning because it will reduce estate taxes. Gift tax rules would apply when the property is placed in trust. If the value exceeded the gift tax exemption, a tax would be due.