Often clients come into my office asking what is the difference between a revocable and irrevocable trust. It seems simple – one is changeable and one is not, right? Well, not so fast.
Let’s start with the easy one — Revocable Trust. A revocable trust is precisely what it says it is – a trust that is revocable, changeable, amendable. You can create it, you can destroy it, you can change it, you can keep it the same until you die. One thing a revocable trust doesn’t do, ever, is protect assets. It will not protect assets from estate taxes or Medicaid spend down. Even with that disadvantage, there are plenty of good uses for revocable trusts, such as:
With a revocable trust, clients set them up with their own money and control them (as trustees) for their lives. Then they choose who is in charge after they both die (if married), and where the money and property go.
So, if a revocable trust is a trust you can change whenever you want, it would follow, then, that an irrevocable trust is one that you cannot change…except that’s not the case. You see, in drafting an irrevocable trust I can reserve certain powers for the grantors (my clients) to allow them to make certain changes during their lifetime. What kind of changes do my clients want to make?
There are many uses for irrevocable trusts, whether protecting assets against long-term care costs, perhaps saving on estate taxes, or shielding assets against liability. These irrevocable trusts do not use the same language and they are not interchangeable. Choosing between them, and the ways we can let clients change them in the future, is where engaging an attorney is essential.
As you can see, the difference between an irrevocable and revocable trust is not so clear-cut. Many times we can achieve a lot of the advantages of a revocable trust with the added benefits of asset protection from inside of an irrevocable trust. This kind of sophisticated planning is benefit our clients enjoy from our focus in this area of law.
Posted by Victor J. Medina
Medina Law Group, LLC