Revocable versus Irrevocable Trust: Which is Right for You
Many of our clients use a trust as part of their overall estate plan. A trust is a legal vehicle in which a trustee holds and manages property for the benefit of someone else, called the beneficiary. There are generally two types of trusts: revocable and irrevocable.
Below, our estate planning lawyer in The Villages identifies the key differences to help jumpstart thinking about which trust might be right for you. Contact us with any questions.
Revocable Trusts: Modify at Any Time
Many people choose to create a revocable trust, also called a “living trust.” This is one that you create during your lifetime to hold property. The person who creates the revocable trust can also serve as trustee and the beneficiary. We can help retitle assets in the name of the trust.
The primary advantage of a revocable trust is that you can modify it at any time. For example, if you want to move property out of the trust, you can do that by retitling it into your own name (or someone else’s name). Because many clients also serve as the trustee, they can make these kinds of moves quite easily.
You can also change the beneficiaries any time you want, which makes things easy if you are using the trust as your primary method for passing on property after death.
Irrevocable Trust: Shield Assets
Irrevocable trusts are much harder, if not impossible, to modify after creation. This means that once property is moved into an irrevocable trust, it is much harder to get back. You also cannot serve as the trustee of a revocable trust but must name someone else, who will typically charge a fee for their services.
Given the flexibility of a revocable trust, why would anyone choose an irrevocable version? One key advantage is that you can shield these assets from creditors. With a revocable trust, these assets are still vulnerable to a creditor lawsuit. For example, you might be sued for a personal injury. If you lose, the plaintiff could try to get the assets you hold in your living trust since they are still seen as yours. With an irrevocable trust, you can protect those assets.
An irrevocable trust also serves a key purpose in tax planning. When the assets are held this way, they are removed from your taxable estate, which is why an irrevocable trust is often used to eliminate or reduce estate taxes. An irrevocable trust can also play a key role in Medicaid planning.
Choosing a Trust
Identifying which type of trust to create requires the help of a skilled attorney. At Millhorn Elder Law Planning Group, we regularly use trusts as part of an overall estate plan for our clients.
There are many types of irrevocable trusts, and we can talk about which ones will allow you to accomplish your goals. Some are better at reducing taxes than others, which is often a key concern. For more information, give us a call, 800-743-9732, to schedule a free consultation.