Revocable vs Irrevocable TrustsMay 09, 2022
A basic question I get all the time is "what's the difference between revocable and irrevocable trusts?" What my clients are getting at is wondering whether or not their plan needs to be based in a trust that is completely amendable or one that is set in stone from the start.
Too often, attorneys will overexplain the differences in terms that lawyers and other professionals may understand rather than speaking to their clients in simple, plain English. The main differences are:
Revocable trusts are the core of many estate plans to avoid probate yet you can remain in full control of your assets (as long as you are competent.) This is what most of my clients are comfortable with, and it's what they are coming to me for.
So when do we use irrevocable trusts? There are several broad areas:
Assets need to be protected from lawsuits
Starting the five year clock for eventual Medicaid qualification
Protecting the trust assets from future estate taxation (often funded with life insurance)
All of that sounds great! Why doesn't everyone do that? Because in order to get any of those protections, you have to give up control of your own assets, turn them over to another trustee, and they get to decide whether or not you can get some of your own money back. This is why irrevocable trusts are almost never used unless there is a some overriding goal that makes giving up control of your own assets worthwhile.
For more information, check out the video I made on this subject here: https://youtu.be/UWtYyt7UoWY
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