You’ve probably heard you need a trust to keep your family out of court and maybe out of conflict in the event of your death or incapacity. And, if you haven’t, you are hearing it now. If you own any “probatable” assets in your name at the time of your incapacity or death, your family must go to court to access them. If you aren’t sure if your assets are “probatable” contact us to discuss.
But you may need clarification about whether you need a revocable living or irrevocable trust. More and more, we are seeing people come our way asking for a irrevocable trust, and so this article is designed to help you learn the difference and then get into an “eyes wide open” conversation about the right kind of trust for you and your loved ones.
What Is A Trust?
A trust is a legal agreement between you as the grantor, who establishes the trust, and a trustee, whom you appoint to manage the assets held in the trust for the benefit of your chosen beneficiaries. It’s essentially a contract outlining how your assets will be managed and distributed.
The terms of this agreement, known as a “trust agreement,” can vary widely, and our role is to help you define the specific terms that align with your wishes for the trustee and beneficiaries.
In the case of a revocable living trust (RLT), you serve as the grantor, trustee, and beneficiary during your lifetime. Essentially, nothing changes legally when you transfer your assets into the trust as long as you are alive and mentally competent.
However, if you become incapacitated or upon your death, the trust becomes irrevocable, and a successor trustee, whom you’ve designated, takes over management of the assets for the benefit of the named beneficiaries. Depending on your trust’s terms, beneficiaries may receive outright distributions or continue to have the assets held in trust, safeguarded from creditors, lawsuits, and taxes.
If you desire to grant beneficiaries significant control over the trust while still protecting the assets, we can assist in incorporating a Lifetime Asset Protection Trust into your plan. This specialized trust structure offers enhanced benefits and safeguards, ensuring your assets are managed and distributed according to your wishes while providing maximum protection for your loved ones.
We support you in making these decisions in our Planning Session process before ever drafting a single legal document for you. But before we talk about that, let’s clarify what a irrevocable trust is and where it might fit into your plan.
A irrevocable trust is the same as a revocable trust — an agreement between a grantor and a trustee to hold the property for a beneficiary. Still, if the trust agreement is irrevocable, or once it becomes irrevocable, it cannot be changed. There are some exceptions to this, but for the most part, that is the case. If you put your assets into a irrevocable trust, you cannot then take them out of the trust and return them to yourself because the gift to the trustee to hold the assets for the beneficiary is irrevocable.
A irrevocable trust can remove assets from your name and protect them from future lawsuits or future growth in your estate, which removes them from your estate for estate tax purposes. We will recommend irrevocable trusts when we are preparing your estate for the potentiality that you may need long-term nursing care that you would like covered by Medicaid without decimating your family’s inheritance, or on the other end of the spectrum, if you have an estate that could be subject to the estate tax or that could be at significant risk of lawsuits.
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