We have previously gone over the difference between a will and a trust. Did you know there are two basic types of trusts? Revocable and irrevocable, let’s go over the differences between those.
A revocable trust is created by yourself, the grantor and can be modified at any time by the trustee, which is almost always yourself with a revocable trust, until your passing or incapacitation. This is the more popular trust because of its flexibility. You can make amendments, move assets in and out, or change beneficiaries. A revocable trust is commonly established to plan for incapacitation, naming who will be your POA and health POA. This prevents the need for a conservatorship or guardianship, which probate court must appoint. With the revocable trust, you get to name who will manage your assets and health care decisions.
There are some downsides though. The assets in a revocable trust are still considered to be owned by you. So that means there is no protection for your assets from creditors, if you are sued, divorcing and/or new spouses have access to them. There are no tax benefits, and these are subject to the Medicaid 5-year lookback. If you wanted that sort of protection, you would want to consider creating an irrevocable trust.
An irrevocable trust is also created by yourself, but it would be extremely hard to modify after it has been established. The benefits include protection from estate tax, probate, and creditors – after a 2-year period. Once you transfer any assets into an irrevocable trust, you have no ownership of them anymore. An appointed trustee will manage the trust and its assets, as the trust designates. Be sure to pick someone trustworthy, grounded and fiscally responsible. They have total control the moment something is transferred into the trust. There are many variations of an irrevocable trust, which you can go over with your estate planning attorney.
At the end of the day, it’s important to plan for your estate. In most cases a revocable trust is the way to go, but not always. Be sure to express your wants and needs with your estate planning attorney so they can guide you as to what trust will benefit you and your beneficiaries the most.