The main difference between an irrevocable and revocable trust is the flexibility you have in changing or terminating the trust. Both types of trusts protect your assets. The one that works best for you depends on your unique needs, and the goals you hope to achieve with the trust.
If you enlist the help of our estate planning attorneys, we will explain the advantages and disadvantages of each trust and guide you toward the choice that will best serve you and your family.
Understanding Revocable Trusts
A revocable living trust, like other trusts, is an agreement that allows you to put assets in an account managed by a trustee. During the process of establishing this trust, you will name the trustee and the beneficiary. You can fund the trust by moving assets into it during your lifetime, or request funding occur after your death. Common ways to pay for this type of trust include:
- Life insurance policies
- Retirement accounts
- The sale of property
- Other assets named in the estate plan
In many cases, you serve as the trustee until your death. This allows you to continue to update the trust. With a revocable trust, you have maximum flexibility and control of what happens with the trust before your death. You can make changes or even terminate the trust agreement. Once you pass away, the beneficiary receives the assets held by the trust. The trustee you name to control the trust following your death has the final say about how the beneficiary spends this money.
There are some downsides to this type of trust. It does not protect assets from your creditors and may not work well for special needs family members who collect benefits based on income and assets.
Understanding Irrevocable Trusts
An irrevocable trust works similarly to a revocable trust, except you cannot make changes, remove assets, or cancel the trust agreement after you establish it. Because you are giving up control of your assets, this provides some protection from creditors.
One of the most common reasons we use this type of trust is to give our clients more control over the proceeds from their life insurance policies. We can move these policies into the trust, and the trustees you choose can oversee the distribution to your children or other beneficiaries after your death. This not only ensures the money paid from your life insurance goes where you want it to, but it can also reduce the estate taxes owed on this money.
We may also use this type of trust to hold the government benefits your special needs loved one receives, allowing you to choose who oversees their financial health after your death.
Making the Decision Between an Irrevocable and Irrevocable Trust
Estate planning is a very nuanced area of the law. Attorneys who do not frequently handle trusts may have a difficult time helping you weigh your options and make the best choice for your personal and financial interests. Our attorneys will listen first, ensuring we understand all aspects of your situation and your family’s financial needs. Only then will we offer advice and guidance about the type of trust that may work best for you.
We Will Discuss Your Case, Review Your Situation, and Choose the Best Option
Imagine you recently received news that you suffer from a debilitating condition. Over the next 10 years, you may slowly lose your mobility and eventually require care at a nursing home or assisted living facility. You call us to find out if there is any way to protect your children’s inheritance from the spend-down required to get Medicaid to pay for your care.
We meet with your family and determine the best option for you would likely be to move a portion of your assets into an irrevocable trust. Once they are no longer in your name, Medicaid cannot consider them when they evaluate your eligibility. You will qualify for benefits sooner, and your children will get to keep their inheritance.
Talk to an Estate Planning Attorney About Your Goals Today
At Bratton Scott, our estate and elder care attorneys can help you put a plan in place that addresses your family’s unique planning needs. With a team that includes not only lawyers but social workers and a registered nurse, we offer a compassionate approach to estate planning. We listen to your goals, hopes, and dreams, and explain the options that can best help you reach them. Because some things are worth protecting.
Call the Bratton Scott team today to learn more about establishing a trust, or to discuss other estate planning tools.