People establish trusts for a range of different reasons. Some want to limit opportunities for conflict among their beneficiaries after their passing. Others want to plan in advance in case they may require Medicaid long-term care benefits or if they worry about estate taxes after their passing.
There are numerous different types of trusts and countless ways to adjust the language entrust documents to achieve a person’s goals. Most trusts fall into one of two categories. There are revocable living trusts and also irrevocable trusts. Understanding what separates these two categories of trusts can help people make informed decisions about what type of trust to create.
Irrevocable trusts are usually unchangeable
As the name implies, an irrevocable trust is not subject to revocation or modification after its creation. Any attempt to change an irrevocable trust must pass through court or may involve the creation of a new trust as part of a process known as trust decanting.
On the other hand, revocable living trusts allow for continued updates, including the addition or removal of beneficiaries or the addition of new assets to fund the trust. Irrevocable trusts generally require careful planning because trustors cannot modify them after establishing them.
Irrevocable trusts require outside trustees
Many people establishing revocable living trusts specifically choose to act as the initial trustee. They also nominate successor trustees to assume their responsibilities when they die or become incapacitated. Irrevocable trusts generally require the immediate appointment of an outside trustee. This creates a degree of separation that helps protect trust resources.
As a closing note, irrevocable trusts generally tend to offer better protection to critical resources. They limit the likelihood of creditors or other parties successfully laying claim to trust assets during litigation or collection efforts. Irrevocable trusts can protect people as they apply for Medicaid long-term care benefits and may also diminish the risk of federal estate taxes after a person dies.
Understanding the unique characteristics of irrevocable trusts can help people determine if these powerful legal tools are right for their estate planning needs. An irrevocable trust can be beneficial for people in a variety of circumstances, and the protection and peace of mind it may offer could more than balance the effort of creating it.