A living trust can be revocable or irrevocable, says Yahoo Finance’s recent article entitled “Revocable vs. Irrevocable Trusts: Which Is Better?” And not everyone needs a trust. For some, a will may be enough. However, if you have substantial assets you plan to pass on to family members or to charity, a trust can make this much easier.
There are many different types of trusts you can establish, and a revocable trust is a trust that can be changed or terminated at any time during the lifetime of the grantor (i.e., the person making the trust). This means you could:
- Add or remove beneficiaries at any time
- Transfer new assets into the trust or remove ones that are in it
- Change the terms of the trust concerning how assets should be managed or distributed to beneficiaries; and
- Terminate or end the trust completely.
The big advantage of choosing a revocable trust is flexibility, as it allows you to make changes whereas an irrevocable trust doesn’t. Revocable trusts can also allow your heirs to avoid probate when you die. After your death, a revocable trust will automatically become irrevocable and no further changes can be made to its terms.
The downside of a revocable trust is that it doesn’t offer the same type of protection against creditors as an irrevocable trust. If you’re sued, creditors could still try to attach trust assets to satisfy a judgment. The assets in a revocable trust are also part of your taxable estate and subject to federal estate taxes when you die.
Unlike a revocable trust, an irrevocable trust is permanent. If you create an irrevocable trust during your lifetime, any assets you transfer to the trust must stay in the trust. You can’t add or remove beneficiaries or change the terms of the trust. In addition to protecting assets from creditors, irrevocable trusts can also help in managing estate tax obligations. The assets are owned by the trust (not you), so estate taxes are avoided. Holding assets in an irrevocable trust can also be useful if you’re trying to qualify for Medicaid to help pay for long-term care and want to avoid having to spend down assets.
The downside of an irrevocable trust, of course, is that you can’t change it and you can’t act as your own trustee. Once the trust is set up and the assets are transferred, you no longer have control over them.
Speak with your estate planning or probate attorney in Davie, Florida to see if a revocable or an irrevocable trust is best or whether you even need a trust at all.
Reference: Yahoo Finance (Sep. 10, 2022) “Revocable vs. Irrevocable Trusts: Which Is Better?”