When it comes to planning for your future, protecting your assets, and ensuring your wishes are followed, trusts are an essential tool in estate planning. Among the different types of trusts, revocable and irrevocable trusts are commonly used for distinct purposes. Knowing the differences between these two types of trusts can empower you to make the best decision for your estate and loved ones.
What Is a Revocable Trust?
A revocable trust, often called a living trust, is a flexible legal arrangement. As the creator of the trust (known as the grantor), you can modify or even revoke the trust at any time while you are alive. You maintain control over the assets placed in the trust, and after your passing, the assets are smoothly transferred to your chosen beneficiaries.
This option offers several benefits. It provides a way to avoid probate, which can save your beneficiaries time and money. The assets in a revocable trust do not need to go through the probate court system, allowing them to be distributed much more quickly. Additionally, a revocable trust offers privacy, as it is not made public through the probate process.
Advantages of a Revocable Trust
Beyond avoiding probate, revocable trusts allow you to continue managing your assets during your lifetime. You can add or remove beneficiaries, change the terms of the trust, or add new assets as circumstances change. If you have concerns about future incapacity, a revocable trust can appoint a trustee to manage your assets for you if you are unable to do so due to illness or disability.
However, because you retain control over the assets in a revocable trust, they are still considered part of your estate for tax and creditor purposes. This means they do not offer protection from estate taxes or creditors.
What Is an Irrevocable Trust?
An irrevocable trust, by contrast, cannot be easily changed or revoked once it is established. Once you transfer assets into an irrevocable trust, you give up control of those assets. This may seem like a significant decision, but it comes with important advantages.
Irrevocable trusts are often used for specific purposes such as reducing estate taxes, protecting assets from creditors, and preserving wealth for future generations. These trusts can also be beneficial if you are planning for long-term care or aiming to qualify for Medicaid, as assets in an irrevocable trust are not considered part of your estate.
Advantages of an Irrevocable Trust
One of the most significant benefits of an irrevocable trust is the asset protection it provides. Once assets are transferred into the trust, they are no longer subject to claims from creditors or lawsuits. In addition, an irrevocable trust can help reduce or eliminate estate taxes, as the assets are no longer considered part of your taxable estate.
Irrevocable trusts are also a common strategy for those planning for Medicaid eligibility. Since Medicaid has strict income and asset requirements, transferring assets into an irrevocable trust can help you preserve your wealth while still qualifying for government assistance.
Which Trust Is Right for You?
The decision between a revocable and an irrevocable trust ultimately depends on your individual needs and goals. A revocable trust offers flexibility and control but does not provide protection from creditors or taxes. An irrevocable trust offers strong asset protection and tax advantages but requires giving up control of your assets.
If you’re unsure which type of trust best suits your situation, working with an experienced estate planning attorney can make the process smoother and more effective. An attorney can help you navigate the legal landscape and create a plan that meets your long-term objectives.
Schedule a Consultation Today
If you’re ready to explore how a revocable or irrevocable trust can benefit your estate plan, we are here to assist. Our caring team at Nirenstein, Horowitz & Associates is dedicated to helping families protect their legacies and secure their futures. Whether you live in Glastonbury, Westport, or anywhere in Connecticut, we will develop a custom plan that aligns with your needs.
Call us today at 860-548-1000 to schedule a consultation, or fill out our contact form to get in touch with one of our estate planning attorneys.
