Deciding Between a Revocable or Irrevocable Trust

In estate planning, a trust is a legal entity that you create to hold assets for and distribute them to designated beneficiaries. One of the chief advantages of a trust is that the assets it controls are exempt from probate, the court process for administering a decedent’s estate. This allows your beneficiaries to gain access to these assets more quickly and with less expense than if they were transferred using a will. Trusts can be arranged in several ways for different purposes.

One of the choices in creating a trust is whether to make it revocable or irrevocable. Both types of trusts will avoid probate, but there are differences relating to such factors as control, flexibility and asset protection. Here are some pros and cons of each:

Revocable Trusts

• Pro: Flexibility and control — As the trust’s grantor, you can serve as trustee during your lifetime, retaining control of the assets and the ability to amend the trust or to revoke it entirely. Assets can be added or removed at your discretion.
• Pro: Simplified administration — Upon your death, a successor trustee you have designated takes over the trust and carries out your instructions, without need of court permission. The successor trustee can also take over in case you become incapacitated.
• Pro: Privacy — Since the trust doesn’t go through probate, the details of the estate remain private. This can avoid the possibility of challenges being raised.
• Con: Limited asset protection — Assets in a revocable trust are generally considered part of your estate during your lifetime and may be subject to claims of creditors.
• Con: Tax liability — The trust assets and the income they generate are subject to income taxes.

Irrevocable Trusts

• Pro: Asset protection — Assets transferred to an irrevocable trust are generally shielded from creditors and court judgments.
• Pro: Medicaid eligibility — Assets placed in certain irrevocable trusts may not be counted for Medicaid eligibility purposes. This allows you to provide for your own long-term care while also setting aside assets for your children and other beneficiaries.
• Pro: Estate tax protection — Irrevocable trusts can be structured to reduce estate taxes, such as by designation as an irrevocable life insurance trust or charitable remainder trust.
• Con: Loss of control and flexibility — You must relinquish control over the trust assets to an appointed trustee. The trust beneficiaries and terms usually may not be changed without a court order.
• Con: Potential tax consequences — Income generated by the trust may be subject to taxes, and there could be gift tax implications during the funding of the trust.

The choice between a revocable and irrevocable trust depends on your specific goals and priorities. A qualified estate planning attorney can help you determine the most suitable approach based on your individual circumstances.

The Law Office of Maurice J. Verrillo, P.C. in Rochester assists New Yorkers in creating trusts, wills and other estate planning instruments. To schedule a free initial consultation, call us at 585-563-1134 or contact us online.

By Maurice J. Verrillo | Published February 15, 2024 | Posted in Estate Planning | Tagged decedent, irrevocable trust, revocable trust | Comments Off on Deciding Between a Revocable or Irrevocable Trust