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A trust is a legal entity, separate from yourself, into which you transfer assets for management and distribution. The person who creates the trust, called the grantor, places assets into the trust. Then, a trustee of the grantor’s choosing manages those assets according to the trust’s terms for the benefit of one or more beneficiaries. People use trusts to control how their assets pass to heirs, avoid probate, protect privacy, and manage wealth. Some trusts offer tax benefits or shield assets from creditors. Trusts can take effect during a person’s lifetime or after their death, depending on the trust structure they choose.
What Is a Revocable Trust?
A revocable trust is a legal arrangement that allows the grantor to place assets into a trust while maintaining control over them during their lifetime. The grantor can change or revoke the trust at any time. A trustee manages the assets according to the grantor’s instructions. When the grantor dies, the trust distributes the assets to the beneficiaries without going through probate.
Advantages of a Revocable Trust
One key advantage of a revocable trust is that it offers more flexibility than an irrevocable trust. Grantors can change beneficiaries, add or remove assets, and dissolve the revocable trust if needed. A revocable trust also allows the grantor to maintain control over assets, while an irrevocable trust requires the grantor to give up control.
Disadvantages of a Revocable Trust
Revocable trusts have some disadvantages, too. Since the grantor maintains control over the assets in a revocable trust, they remain part of the grantor’s estate and do not receive protection from creditors or lawsuits. These trusts also do not provide tax benefits, such as reducing estate taxes. Finally, setting up a revocable trust is typically more expensive than a simpleLast Will and Testament.
What Is an Irrevocable Trust?
An irrevocable trust is a legal arrangement where the grantor transfers assets into a trust and gives up the right to change or revoke it. Once the assets move into the trust, the grantor no longer owns them. Because the grantor gives up control of the assets, the irrevocable trust provides benefits that a revocable trust does not.
Advantages of an Irrevocable Trust
An irrevocable trust removes assets from the grantor’s taxable estate, which can reduce estate taxes. It also protects assets from creditors and legal judgments since the grantor no longer owns them. Many people use irrevocable trusts for Medicaid planning because trust assets do not count toward Medicaid eligibility thresholds if transferred within the allowed time frame.
Disadvantages of an Irrevocable Trust
A key disadvantage of an irrevocable trust is that the grantor cannot change the trust or take back assets after transferring them. This lack of flexibility can create challenges if financial situations change. While these trusts offer protection and tax benefits, they require careful planning and typically cost more to set up than Last Will and Testaments.
How an Attorney Can Help With Trust Planning
An attorney can help you choose the right type of trust based on your estate planning goals. They can explain the differences between revocable and irrevocable trusts and determine which option best protects your assets and meets your needs. They can also set up a legally sound trust or trusts that follow state laws and transfer your assets according to your wishes. If your circumstances change due to marriage, divorce, or financial shifts, an attorney can modify your trust to reflect your new situation.
Contact a Trust Planning Lawyer Now
Trust planning requires careful consideration. The Law Offices of Patricia Bloom-McDonald can help you understand your options and create a trust that suits your needs. Whether you need a revocable or irrevocable trust, Attorney Patricia Bloom-McDonald can guide you through the process and make any updates as your circumstances change. Contact our firm today to arrange your initial consultation session and get the legal guidance you need.