Revocable Trust vs. Irrevocable Trust
Revocable Trust vs. Irrevocable Trust: Understanding the Differences
Contrary to popular belief, revocable trusts and irrevocable trusts are not specific trust types but rather categories that define their flexibility. A "revocable" trust allows amendments or revocation during your lifetime, while an "irrevocable" trust cannot be revoked and may only be amended under limited circumstances.
Within these categories lie various specific trust types, each tailored to accomplish distinct objectives. Here, we explore the differences between revocable and irrevocable trusts, shedding light on when and why you might choose one over the other.
Irrevocable Trusts: What You Need to Know
The fundamental concept is clear: once assets enter an irrevocable trust, you forfeit control over them. While you may still receive income from these assets, they are no longer within your direct reach.
Balancing your lifestyle needs with asset protection is crucial when considering an irrevocable trust. For instance, individuals planning for Medicaid often place real estate into such trusts while retaining control over liquid assets. This way, you may use a portion of your legacy for long-term care without depleting your resources entirely, ensuring substantial asset protection.
Revocable Trusts: What You Need to Know
A key aspect of a revocable trust is that it does not shield assets from creditors, long-term care expenses, or taxes, except for limited exceptions like a family trust for married couples. If your trust goals extend beyond asset protection, a revocable trust is an adaptable instrument that allows you to adapt to changing life circumstances and wishes.
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Understanding Trust Terminology
Trusts come in various types, which may sometimes seem confusing. Below is a list of common trust types and their characteristics:
- Living Trust (Inter Vivos Trust): These trusts are created during your lifetime and can be either revocable or irrevocable.
- Family Trust: Typically used by married couples to combine their estate tax exemptions, family trusts can be either revocable or irrevocable, though revocable trusts are more common in this context.
- Spendthrift Trust: Designed to protect a beneficiary's assets from creditors or the beneficiary's financial mismanagement, spendthrift trusts are typically irrevocable.
- Crummey Trusts: These trusts allow you to gift assets to a trust rather than an individual beneficiary, reducing your taxable estate and avoiding gift taxes. To qualify, the beneficiary must have the option to receive the assets directly and decline when initially placed in the trust.
How Our Estate Planning Lawyers Can Help
Understanding the differences between revocable and irrevocable trusts is essential for effective estate planning. Consult with our experienced estate planning attorneys to determine which trust aligns with your specific financial goals and tailor your estate plan accordingly. Your financial future awaits comprehensive optimization. You can start by using the button below to schedule a free information call, or simply give us a call at 781-784-2322.