Irrevocable Trust and Revocable Trust: What’s the Difference?
As you navigate through the journey of life, you accumulate assets that not only define your lifestyle but also symbolize your hard work. These assets form your legacy, and you want to ensure they’re managed and distributed according to your wishes even after you’re gone.
Revocable living trusts and irrevocable trusts are tools that can help you achieve that. But what’s the difference between the two? Let’s delve into this important topic.
What is a Revocable Living Trust?
Imagine having a box where you can keep all your assets securely and still retain the keys to it, allowing you to take out or put in whatever you want, whenever you want. A revocable living trust is much like that box.
Established during your lifetime, a revocable living trust allows you to maintain control over the assets placed in the trust. As the name suggests, it is “revocable,” meaning you can change or dissolve the trust at any time.
You can act as the trustee, managing and distributing the assets as per your wishes. Upon your demise or if you become incapacitated, a successor trustee, chosen by you, steps in to manage and distribute the assets to your chosen beneficiaries.
One of the primary benefits of a revocable living trust is that it avoids probate – the often lengthy and costly legal process to distribute your assets after death. However, the assets in a revocable trust are considered your property legally, so they are not protected while you are living.
The Irrevocable Trust: A Different Approach
Now, consider a safety deposit box in a bank, where once you place something inside and lock it, you can’t get it back without a key held by a third party. An irrevocable trust is akin to this safety deposit box.
With limited exceptions, once an irrevocable trust has been established, it cannot be altered or dissolved. Once you transfer assets into an irrevocable trust, you effectively remove your rights of ownership. The trust, managed by a trustee of your choosing, now owns these assets.
The seeming loss of control is counterbalanced by some significant benefits. Assets in an irrevocable trust would not be part of your estate for tax purposes. You can also use this type of trust to get assets out of your own name to qualify for Medicaid to pay for long-term care. These are a couple of the applications, and there are others.
Choosing Between Revocable and Irrevocable: What’s Best for You?
The decision between a revocable living trust and an irrevocable trust depends entirely on your individual circumstances, needs, and objectives. If you desire flexibility and control over your assets, a revocable living trust might suit your needs. On the other hand, if your primary goals are to protect assets, reduce your taxable estate, or position your assets with future Medicaid eligibility in mind, an irrevocable trust would be the right choice.
View Our On-Demand Webinar on Estate Planning for Women!
Our attorney Justin Stivers makes an effort to provide educational opportunities for members of the Coral Gables community. You can find a lot of written material on this website, and we go the extra mile in another way.
We have recorded some on-demand webinars that cover important topics of interest. One of them focuses on the subject of estate planning for women. There is no charge to view this webinar, so this is a great opportunity to gain some important knowledge. To access the webinar, click this link and follow the simple instructions.
Need Help Now?
If you have already learned enough to know that it is time for you to work with a Coral Gables, FL estate planning lawyer to put your plan in place, our doors are open. You can call us at 305-456-3255 to set up a consultation appointment, and you can alternately send us a message through our contact page.