For many people, the choice between an irrevocable trust and a revocable trust comes down to a matter of asset control. There are some clear differences in benefits that should also be considered. Trusts have been around for a very long time, but they’ve only really begun to gain mainstream acceptance in the last several decades. When it comes to choosing between an irrevocable and a revocable trust, our Charlotte trust attorney can help you decide which option is best for your needs.
How irrevocable and revocable trusts are similar
At their core, the trust types share characteristics both in terms of basic structure and fundamental benefits. On the structural side, the irrevocable and revocable trusts must have the same elements that every trust requires. Both require a grantor who makes the trust. That grantor is also responsible for providing the assets to fund the trust so that it can accomplish its mission.
Both trust types must have someone designated to serve as the trustee. The trustee is the person who is responsible for managing the trust and its assets, preserving those assets’ value, and distributing them to any named beneficiaries as instructed by the terms of the trust.
How irrevocable and revocable trusts are different
The differences come from the ability to revoke the trust once it’s created – or the inability to revoke the trust. In the case of the revocable trust, the name says it all. This trust can be revoked or changed by the person who made it at any time while he’s still alive. The irrevocable trust has a similarly self-explanatory name and cannot be canceled or changed once it’s created. That attribute impacts its usefulness as well. Of course, these two trusts have other differences as well. Those differences will become clearer as we evaluate the respective benefits that each type of trust can provide.
The Benefits of a Revocable Trust
The revocable trust’s benefits have been widely discussed in recent years – although not always accurately. With a revocable trust, you can avoid probate for trust assets. Since those assets can be distributed to heirs by the trustee, there is no need for a court-supervised process.
A revocable trust can preserve your privacy by keeping the settlement process out of the courts. Revocable trusts provide an orderly way to distribute assets and can even ensure that your heirs receive distributions in less time than they might experience with probate. Revocable trusts can also give you more flexibility over how and when your beneficiaries will receive distributions after you are gone. The revocable trust can enable you to maintain more control over your assets by naming yourself as the trustee, and you always have the option of ending the trust if it no longer suits your needs.
Benefits of an Irrevocable Trust
The irrevocable trust has its own benefits, of course – and some of them mirror those of the revocable variety. For example, an irrevocable trust also keeps trust assets out of probate and preserves privacy. It also provides a reliable mechanism for transferring assets when you die. It does not, however, provide you with the unrestricted ability to exercise control over those assets. Once you relinquish ownership, you can neither exercise unfettered control over the assets nor reclaim them by dissolving the trust.
Since the assets are beyond your reach and no longer part of your estate, creditors cannot gain access to them in lawsuits or other actions. The IRS no longer counts those assets as part of your estate either, and that can mean big reductions in your estate tax liability. More commonly, if you need to apply for Medicaid benefits for nursing home care in the future, the assets in an irrevocable trust won’t be counted when your eligibility is calculated. If you have questions about any of these issues ask our Charlotte trust attorney.
Our trust attorney can help you decide which type of trust you need
Neither type of trust is inherently superior to the other, as they both have their role to play in the estate planning process. In fact, many people have revocable and irrevocable trusts within their estate plans, with each type used to accomplish different important objectives. That’s why comparing the irrevocable vs revocable trust can be so difficult for so many people.
Join us for a FREE seminar today! If you have questions regarding revocable or irrevocable trusts or any other estate planning needs, please contact the experienced Charlotte estate planning lawyer at The Potter Law Firm for a consultation, either online or by calling us at (704) 944-3245 (Charlotte, NC or Huntersville, NC) or for individuals in Kentucky, at (606) 324-5516 (Ashland, KY) or (859) 372-6655 (Florence, KY).