When it comes to making an estate plan, you often hear about people creating trusts. The two most common trusts mentioned are Irrevocable Trusts and Revocable Trusts.
Similarities
Let’s first begin with some of the similarities between the two. Both an Irrevocable Trust and a Revocable Trust avoid probate/administration proceedings for the assets titled to either one of these trusts. This means that if you set up one of these trusts and transfer your house, for example, into that trust, your trust beneficiaries will get the house without having to go to court to probate your Last Will and Testament (if you had one) or to do an administration proceeding if you die without one. Setting up a trust and transferring some of your assets into that trust could potentially save your family time and money associated with administering your estate when you pass.
Differences
In a Revocable you can be your own Trustee. This means that you can be the person managing the Trust assets. A Revocable Trust also allows you to transfer assets in and out as you wish. By establishing a Revocable Trust, you remain in full control of your assets, which is appealing to most clients.
In an Irrevocable Trust, you cannot be your own Trustee. Instead, you need to select a person you trust (it can be a trust beneficiary) who would manage the trust assets for you. By transferring assets into an Irrevocable Trust you give up direct control of that asset. However, you still have many provisions which help maintain control. For example, when you put your house in the irrevocable trust, you maintain a life estate – a right to live in this house for as long as you wish. Additionally, if you wish to sell your house and purchase a replacement property, you can do so, as long as your Trustee goes along with you. The safety cushion that this type of trust provides is that you can “fire” your Trustee if he or she is not managing the assets as you like. Therefore, you can retain a substantial amount of control. Additionally, an Irrevocable Trust, unlike a Revocable Trust, provides protection for your assets during your lifetime in the event you need Medicaid to help pay for your long-term care in the future.
Please note that these trusts can have other differences as they can be specifically tailored to the client and the client’s needs. Remember to ask your attorney about which trust would work best for your situation.