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Revocable Living Trust Or Irrevocable Trust: Which One Is Right For You?

You might have heard that a trust can keep your family out of court and maybe out of conflict in the event of your death or incapacity. If you own any “probate-able” assets in your name at the time of your incapacity or death, your family must go to court to access them.

There is a difference between a revocable living trust and an irrevocable trust. This article will explain the basics, which might help you start a conversation about what the right trust is for you and your loved ones.

What Is A Trust?

A trust is an agreement between the grantor of the trust (that’s you) with a trustee (someone you choose) to hold title to assets for the benefit of beneficiaries (could be you or someone else). When we break it down in its simplest form, it’s that straightforward. It’s an agreement.

The terms of that agreement, called a trust agreement, can vary significantly, and that’s where we can help to clarify the terms that you want between yourself and the trustee for the benefit of the people you name as beneficiaries.

With a revocable living trust (RLT), during your lifetime, you hold all three roles: you are the grantor, the trustee, and the beneficiary. For all intents and purposes under the law, nothing really happens when you retitle your assets in the name of your RLT so long as you are living and have mental capacity (meaning you can make decisions for yourself).

With an RLT, if you become incapacitated (which is determined by the language and instructions in the trust agreement) or in the event of your death, the trust becomes irrevocable, and the person or persons you’ve named as successor trustee steps in to manage the assets held in the name of the trust for the benefit of the beneficiaries. If you are still living but incapacitated, you would still be the beneficiary. If you have died, then your named heirs would be the beneficiaries. At that point, the trust may distribute outright to your beneficiaries or be held in continuing trusts, protected from creditors, future divorces, future lawsuits, and even estate taxes (if the trust is drafted properly). An irrevocable trust is the same as a revocable trust in that it is 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 an irrevocable trust, you cannot withdraw them out of the trust and talk them back for yourself because the gift to the trustee to hold the assets for the beneficiary is irrevocable. An 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. For some people, an irrevocable trust is a good idea if there is a potential of long-term nursing care that you would like covered by Medicaid without decimating your family’s inheritance or if you have an estate that could be subject to the estate tax or that could be at significant risk of lawsuits.

When you meet with us, we will talk about your assets, family dynamics, personal desires, and how the law will apply to all of it. We can help you make informed decisions about the right plan for you, discussing whether to include a trust, whether that trust should be revocable, and if so, when it should be irrevocable, and how long it should last for the people you love.

We do not recommend you choose any type of trust without the help of a lawyer who understands you, your family, your assets, and your goals. We also don’t recommend using a life insurance professional or financial advisor to choose the type of trust or draft your trust for you. Too many variables could leave your family with messy unintended outcomes. Insurance, financial, and tax advisors are important professionals to help guide you, and your estate planning attorney is an important part of that team.

When meeting with us, we will discuss your family dynamics, assets, risks and liabilities, and work with your financial, tax, and insurance professionals together, so that you are empowered in the decision-making process of creating an estate plan. Contact us today if you’d like to get started.

This article is a service of Jennifer Winegardner of Rayboun Winegardner, PLLC. We do not just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love. That's why we offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

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