When you hear about the fact that there are revocable trusts and irrevocable trusts, you may wonder why you would use one and not the other. On the surface, a revocable trust sounds better in a general sense, because you would have the ability to dissolve the trust and take back the assets if you ever change your mind.
This ongoing control can be a good thing under certain circumstances. When you have a revocable living trust, you can rescind it entirely, but while it is intact you can act as the trustee and the beneficiary. As a result, your control is absolute every step of the way.
One major advantage that you gain if you use a revocable living trust is the facilitation of probate avoidance. A will would be admitted to probate after your passing, and this process is time-consuming and potentially expensive. Assets in a revocable living trust can be distributed to the beneficiaries in a more timely and efficient manner outside of probate.
You could also include spendthrift protections if you use a revocable living trust instead of a last will, and this is another advantage.
The Value of Irrevocable Trusts
You surrender incidents of ownership when you create an irrevocable trust, since you cannot rescind or revoke the trust. This provides certain benefits.
For example, high net worth individuals can be exposed to estate taxes. There is a federal estate tax, and in New York where we practice law, there is also a state-level estate tax. Assets that have been conveyed into certain types of irrevocable trusts would no longer be part of your estate for tax purposes.
This type of trust could also be useful if you want to provide for a loved one with special needs who is enrolled in government benefit programs that are only available to people with very limited resources. If you were to convey assets into an irrevocable special needs trust, the trustee could use the assets to make the beneficiary more comfortable, but benefit eligibility would not be impacted.
Irrevocable trusts can be used to protect assets if lawsuits are a source of concern for you, and there are irrevocable spendthrift trusts that can protect assets from the beneficiary’s creditors.
Many elders seek Medicaid eligibility late in their lives, because Medicare does not pay for long-term care. You cannot qualify for Medicaid if you have significant assets in your own name. Assets that have been conveyed into an irrevocable Medicaid trust would not be counted by Medicaid evaluators.
Schedule a Free Consultation
You should certainly understand all of your options when you are planning your estate. If you would like to discuss your unique personal situation with a licensed professional, send us a message through this page to set up a free consultation: Smithtown Long Island Estate Planning Attorneys.