DO I WANT A REVOCABLE OR AN IRREVOCABLE TRUST?
Clients are always asking me to explain the difference between an irrevocable and a revocable trust. After I explain the differences, the next questions is which is the best one for me. There is no right or wrong answer. The best trust is the one that accomplshes your goals while allowing you to retain the maximum amount of control.
If your goal is to avoid probate, establish an organized plan for the management of your assets when you become disabled or to protect the privacy of your property and beneficiares, a revocable trust may be perfect for you. If you have a disabled child, spouse or relative and you want a vehicle for management of that person's property, a revocable trust may also be perfect. Putting your assets into a revocable trust allows you to enjoy these many important benefits without giving up control of your assets during your lifetime.
If you goal is to qualify for government benefits such as Mass Health or reduce your estate tax liability by reducing the value of assets in your name, than an irrevocable trust may be your only option. The benefit is that you and your heirs and beneficiaries can save hunderds of thousands of dollars by protecting your assets from the cost of a nursing home or taxation under the estate tax laws. An irrevocable trust provides all the benefits of a revocable trust as well as the cost savings benefits unique to an irrevocable trust. The disadvantage is that you need to give up some measure of control of your assets. Assets put into an irrevocable trust should be the ones you do not need for daily living. In order to protect your assets from nursing home costs and/or estate tax, you must give up access to the trust principal. In other words, if you have property you want your heirs to inherit and you do not need it during your lifetime, but you do not want your heirs to have this property until after you die, you should consider putting the assets into an irrevocable trust. If you want Mass Health or the taxing authorities to treat the assets as if you do not own them, you cannot act like a complete owner. It makes sense.
The most important difference between a revocable and an irrevocable trust is that a revocable trust can be amended or changed at any time and an irrevocable trust cannot be changed, or certainly not easily or freely.
This article is not meant to be construed as legal advice and should not be interpreted in such a manner and does not create an attorney client relationship. If you want legal advice about your specific situation, please contract an attorney with expertise in estate planning, trusts and/or Mass Health eligibility.
