What Are the Key Differences Between Revocable and Irrevocable Trusts?

Protect What You’re Proud Of

Most of us work hard our entire lives to have the assets and memories we have now. Protecting them is instinct, and estate planning allows you to do just that. By putting together an effective estate plan, you can ensure that your hard work doesn’t get chipped away by unnecessary taxes or other costs upon your death and, instead, goes towards benefitting those you love the most.

There are so many resources available in estate planning that the process may seem overwhelming to some. An experienced estate planning attorney can put together a strategy for you based on your current and future needs, so you can have peace of mind knowing that though none of us have a crystal ball, you can help plan for your future as best as possible.

What is a Revocable Trust?

One of the most common resources used in estate planning is a trust. There are two common types of trusts, with several more specialized options in each category. A revocable trust allows the creator to make changes throughout their life as needs change.

Flexibility in a revocable trust appeals to many, as we can modify it as our lives and needs change throughout our lifetime. As long as you are competent, you can typically make changes to a revocable trust to better align with the current needs of your life.

The trust’s creator remains in the driver’s seat of the assets within and can (and should) name a successor trustee that will carry out the creator’s wishes as stipulated upon their death or should they become incapacitated.

What is an Irrevocable Trust

An irrevocable trust requires a challenging process if any changes are to be made. However, it has several advantages for the right person. Once the irrevocable trust is created, changes aren’t easily made without court intervention and typically involve the beneficiaries.

One of the main advantages of an irrevocable trust is that the assets held within it are typically not eligible for estate or other taxes, as the trust is now the owner of the assets rather than the person who created the trust. Ownership is transferred as the trust is funded, making the original owner no longer able to access those assets, but can typically avoid having the value of assets within included in their taxable estate.

Benefits of an Irrevocable Trust

Assets held within an irrevocable trust are typically exempt from taxes and further protected than assets not in a trust. If you owe creditors, for example, they can typically pursue other assets to pay off the debts that you owe. If you utilize a trust, the assets held within are not subject to the creditor’s efforts to collect debt.

Furthermore, if you have unforeseen collections that may occur in the future, such as lawsuits, having assets held in an irrevocable trust can offer protection against having them taken away.

For example, if you are a surgeon in a highly susceptible field, protecting your assets in an irrevocable trust may help ensure they remain where you want them rather than being seized due to a lawsuit.

Additionally, if planned well in advance, having assets held within an irrevocable trust can help ensure that your overall estate calculation is far less, which may help make you a viable candidate for benefits such as Medicaid later in life. Though there are other ways to increase eligibility for Medicaid, such as spending down assets, having them placed in an irrevocable trust can help be the first line of defense.

Benefits of a Revocable Trust

Some of the most common benefits of a revocable trust are the flexibility and ease of setup. Suppose you create a revocable trust in your 20s or 30s. Your needs at that stage of your life may vastly differ from your financial needs in your 50s.

A revocable trust allows you to modify throughout to ensure your and your loved one’s needs are continually met.

A revocable (or irrevocable) trust allows privacy during probate. If your entire estate is subject to probate, all your assets will become a public matter as they enter the probate court. Creating a trust allows privacy of your assets as they can transfer as stipulated to the intended parties rather than be presented in probate court.

Changes that may need to be made are to beneficiaries. Much like personal needs can change throughout life; beneficiaries may not always remain the same. You may have chosen a beneficiary as they were once an integral part of your life, and that may have changed. A revocable trust allows you to make these changes with little challenges.

Finally, another aspect to consider is if you own multiple properties in multiple states. Most states will require that assets within that state must go through probate, called ancillary probate. This process can be cumbersome for loved ones left behind as they may be forced to enter multiple probate processes. Costs and inconvenience can be avoided by creating a trust for properties in other states, such as vacation homes or investment properties.

We Treat Clients Like Family

We understand the estate planning process can be overwhelming for some, but it doesn’t need to be. In fact, it can be one of the most financially responsible and caring things you can do for your family and your future.

Contact our office today at (248) 997-4394 to speak with one of our experienced team members who can begin creating a customized strategy for you and your loved ones.