At first glance, it seems like the difference between a revocable trust and an irrevocable trust would be obvious. You can revoke a revocable trust. The same is not true of an irrevocable trust.
To understand the real differences between these types of trusts, it is helpful to look at the different ways they are used as part of an estate plan.
Benefits of a Revocable Living Trust
Clients often include a revocable “living” trust in their estate plan as a way to bypass probate and enable someone to manage their finances if they become incapacitated. The person who establishes the trust also serves as trustee and beneficiary, so they can use and enjoy their property just as they did without the trust.
The naming of a successor trustee and successor beneficiaries allows this type of trust to serve its true purposes. If the creator of the trust becomes incapacitated and unable to make or communicate decisions, the successor trustee can step in and take over. When the creator passes away, property in the trust passes directly to the successor beneficiaries. It does not become part of the estate, so it does not need to go through the expense and delays of the probate process. Setting up a revocable trust can make things much easier for loved ones when you pass away.
Irrevocable Trusts Protect Property
Once someone puts property into an irrevocable trust, they cannot take it out again. It no longer belongs to them but to the trust. The trustee manages that property for the benefit of the beneficiary. Why would someone give up control of their property when they just set up a revocable trust and stayed flexible? They do so because various types of irrevocable trusts can protect property in ways that a revocable trust cannot.
Property can be transferred into an irrevocable trust to accomplish goals such as:
- Minimizing estate taxes or other tax liability
- Protecting assets from creditors
- Establishing Medicaid eligibility
- Providing care for someone with special needs
- Supporting charitable causes
- Providing funds for education
The law does not allow trusts to fulfill these purposes unless the trusts meet very specific requirements. Irrevocability is one of those key requirements.
Balancing Your Needs with Different Trusts and Other Estate Planning Tools
Estate planning attorneys can work with clients at all stages of life to develop comprehensive plans to protect their interests during their lifetime and provide for loved ones in the future. Since you give up control of and access to property that you transfer into an irrevocable trust, you will want to make those decisions very carefully, and balance short-term needs against long-term benefits. For many people, the optimal estate plan includes one or more trusts set up in conjunction with other documents and beneficiary designations.
Find Out Whether a Revocable or Irrevocable Trust is Right for your Family
Everyone’s situation is unique, meaning you need to have a plan developed with your particular goals and circumstances in mind. The experienced team at Salines-Mondello Law Firm, PC is ready to help you create or revise a plan to protect your interests now and adapt to changes in the future. Contact us today to learn more.