Before creating a trust, it’s important to understand just what the differences between revocable and irrevocable trusts are, and any accompanying advantages or drawbacks.
Revocable Trusts
Advantages
A revocable trust, also known as a living trust, gives you ownership of and control over your assets. It can be changed, amended, or even terminated as you desire. This gives you a great deal of flexibility if you decide to make changes with regard to who your beneficiaries are, to appoint a different trustee, or even to modify the terms of the trust itself.
In addition, creating a revocable trust avoids probate, a possibly lengthy and expensive process, while at the same time protecting the identity of your beneficiaries and details about where your money went. Probate is the process of a court distributing your assets according to your will or, if you don’t have a will, according to what the probate judge thinks is right and fair. This process makes your will and assets available for the public to see. Trusts on the other hand are not filed with the court, so you and your beneficiaries can keep your privacy.
Disadvantages
The downside to a revocable trust is that the trust assets are still considered the personal property of the grantor. That means your assets are not protected against estate taxes, creditors, or legal judgments. This lack of protection also extends to Medicaid planning, where the entirety of the trust will count towards Medicaid purposes if you find yourself in need of long-term care. The problem with this is that you have to have a certain amount of money or less in order to qualify for Medicaid assistance.
A revocable trust comes with more flexibility, but there is also a greater risk to your assets.
Irrevocable Trusts
Advantages
Conversely, an irrevocable trust generally cannot be amended once it has been created, but can provide greater protection over your assets. This is because any assets placed in the trust pass from being your property to being the property of the trust. This essentially reduces the size of your estate, thus saving you the money usually spent on personal estate taxes when you pass. Any assets placed into the trust are also now out of reach from creditors and adverse legal judgments. Your assets are also no longer considered as an available resource when applying for Medicaid. In addition, you’re still allowed to use your assets such as the house you live in or the car you drive.
Disadvantages
Once that irrevocable trust is created, that’s it. It’s as good as written in stone. You cannot get back your assets even if the circumstances change, or you later regret any of the terms.
In summary:
Revocable Trusts
- Can be amended or dissolved at any time during your life
- You can enjoy use of trust assets
- Flexibility and control
- Does not protect assets from creditors, estate taxes, legal judgments or Medicaid
Irrevocable Trusts
- Once created, it generally cannot be changed or modified
- Assets can be used for the benefit of the grantor
- Protection from estate taxes, legal judgments, and creditors, and Medicaid
- No flexibility. Must abide by terms forever, even if minds or circumstances change
There is no one-size-fits-all when it comes to estate planning. Every person’s circumstances are unique, and each state has its own particular set of rules with regards to creating this essential document. Qualified legal help is a must. Louis E. Barreto and Associates is here to partner with you in determining the very best way to protect and distribute your assets now and in the future. Call (305) 358-1771 and let us help you get started today.
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