Every trust contains a trust maker, a trustee, and at least one beneficiary. Trusts vary, however, in why and how they are established. Before creating and funding a trust, it’s important to know a little about the different types of trusts. In this blog, we’ll take a look at the difference between revocable trusts and irrevocable trusts.
Actually, the names may be a big tipoff to the main qualities of each type of trust.
A revocable trust, a/k/a inter vivos or living trust can be changed, modified, or revoked. An irrevocable trust, on the other hand, is designed to be difficult or impossible to alter or cancel.
Because assets transferred to a revocable trust remain under the control of the grantor, they also remain in the grantor’s estate. With the irrevocable trust, however, the trust assets are no longer controlled or owned by the grantor.
Assets owned or controlled by the grantor are vulnerable to creditor claims, civil judgments, and estate taxes. In addition, the owner may find it difficult to qualify for public benefits, like Medicaid, with those assets still on their balance sheet.
Since the owner no longer controls the assets in the irrevocable trust, the assets aren’t taxed or used against the trust maker if it comes time to apply for Medicaid. An irrevocable trust also offers a layer of asset protection against claims that is not provided by the revocable trust.
Sometimes it comes down to revocable vs. irrevocable when someone thinks about establishing a trust. Attorneys consider a client’s circumstances and goals when advising on estate planning strategies like trusts. There may be times that the asset owner needs to remain in control, or situations where the trust maker needs the protection of the irrevocable trust.
A trust may offer great benefits to you, but you have to choose the right one. We look forward to discussing your concerns and setting up a trust that works for you.