Are you contemplating establishing a trust to protect your assets and guarantee their proper distribution to your loved ones when the time comes? If so, you may have encountered the terms “irrevocable trust” and “revocable trust.” While both can offer asset protection and allow for the transfer of assets, they have distinct features that can significantly impact your estate planning goals.
Continue reading for knowing major differences between irrevocable and revocable trust!
- Tax Implications
- Medicaid Planning
- In Summary
A revocable trust permits the grantor to make changes or revoke the trust at any time. In contrast, an irrevocable trust is fixed once created, and the grantor cannot change or cancel it. This lack of flexibility in an irrevocable trust may seem restrictive, but it also provides greater asset protection and prevents the trust from being challenged in court.
With a revocable trust, the grantor retains control over the assets and can decide how they are managed and distributed. In contrast, an irrevocable trust places the assets under the control of a trustee, who is responsible for managing and distributing them per the terms of the trust. This can provide more protection against creditors and ensure the proper distribution of assets.
In flow of understanding major differences between irrevocable and revocable trust we should know with a revocable trust, the assets are still deemed part of the grantor’s estate for tax purposes. This means they may be subject to estate taxes upon the grantor’s passing. In contrast, an irrevocable trust removes the assets from the grantor’s estate, potentially reducing the tax liability for their beneficiaries.
In a revocable trust, the grantor keeps ownership of the assets placed into the trust. They can still buy, sell, or transfer them as they wish. However, the grantor no longer owns the assets in an irrevocable trust. This means they cannot be used as collateral for loans or be subject to claims from creditors, providing more excellent protection against financial risks.
When paying for long-term care, having assets in a revocable trust may make an individual ineligible for Medicaid benefits since they still technically own those assets. However, an irrevocable trust may help protect those assets, making it a valuable tool in Medicaid planning. By moving assets into an irrevocable trust, individuals may qualify for Medicaid benefits while still providing for their loved ones and preserving their assets.
A revocable trust is considered a private document not filed with the court, meaning it is not accessible to the public. This allows the grantor to keep their assets and the terms of the trust confidential. In contrast, an irrevocable trust is generally filed with the court and can become part of the public record, making it more vulnerable to being contested or challenged.
Ultimately, while both irrevocable and revocable trusts have their benefits, they have distinct differences that must be carefully considered. It is crucial to consult with an attorney when setting up a trust to ensure it aligns with your goals and meets all legal requirements.
If you are ready to set up a trust but don’t know where to start, Forms.legal can help. We offer free templates and forms for revocable trusts. Take advantage of this resource and start planning for the future of your assets today.