Revocable trusts and irrevocable trusts each do different things in estate planning.
You have decided to move forward with an estate plan. You are interested in a trust, but what kind of trust is right for you? You have a friend who tells you that “irrevocable trusts” are the way to go but the word “irrevocable” scares you. Does that mean you won’t be able to get your assets back after they go into the trust? What about a “revocable” trust? What does that do for you?
Keep the courts out of it
Like everyone else, you want to avoid court involvement (and its delays) in the affairs of your estate when you pass away. With proper planning and follow-through, both revocable and irrevocable trusts will accomplish that for you.
Revocable trusts – what they do
The most common and basic type of trust is a revocable trust. Most revocable trusts give you lots of control and access to the assets inside the trust. This trust also gives you the flexibility to change terms inside the trust after it’s created. You can also completely revoke it and end its existence.
With the amount of control it provides, many of my clients don’t notice a difference in how they manage their assets once they are inside the revocable trust. A revocable trust can provide protection in case a minor or disabled beneficiary becomes a beneficiary of your estate. A revocable trust has many uses, and for most people this is the trust of choice.
Revocable trusts – what they don’t do
The great access and control a revocable trust gives you can also be one of its drawbacks. Many of my clients ask about estate taxes. Protection from creditors and nursing homes are among their concerns. Revocable trusts do not protect the assets inside it from estate taxes.
Revocable trusts also do not provide any protection against creditor claims or long term illness costs. Whatever is accessible by you in the revocable trust is also accessible by creditors, predators, and nursing homes. When my clients have these types of concerns, we have a conversation about whether an irrevocable trust makes sense.
Irrevocable trusts – what they do
As their name implies, irrevocable trusts are generally less flexible than revocable trusts. But they can provide greater protections. Irrevocable trusts can be used to remove one’s assets from their estate, avoiding estate taxes at death. Irrevocable trusts can also provide asset protection from creditors for business owners and professionals. Another benefit is protection from spending everything one has in the case of a costly long term illness.
This is a bad idea
My clients typically have long term care concerns and want to “avoid paying everything to the nursing home.” They have heard how they should give away everything to their children or other family members. They want to prevent the nursing home and the government from taking it from them.
This is usually a terrible idea, especially since they may need that money in the future. Giving something to another person means it is not yours any more. You have no control over it when you need it, and it will subject that property to that person’s creditors, including ex-spouses in a divorce. It can’t be given back if that person dies or becomes disabled. A better solution may be repositioning that asset into a properly drafted irrevocable trust.
Irrevocable trusts – great flexibility
A properly drafted irrevocable trust can still provide the person creating it some control and flexibility. For instance, a house transferred to a properly drafted irrevocable trust may allow you to continue to live there without fear of the trustee kicking you out. The trust may also allow you the ability to remove trustees and change beneficiaries in the future. Certain state laws may even allow you and other beneficiaries of the trust to revoke that irrevocable trust.
Involving a trust in your estate planning is always a good idea. Depending on your goals, there are many options available to you that can accomplish your goals. Involving a qualified professional estate planning attorney is absolutely critical. Doing it yourself will can cost you more than just money at the time you need good estate planning the most.
Call today for an appointment. Quinn & Banton will help you discover the proper mix of estate planning and trust vehicles for your situation.
Written by Brian G. Quinn, Attorney with Quinn & Banton, L.L.P.