You’ve likely heard about the necessity of a trust to keep your family away from court and potential conflicts in the event of your death or incapacity. In case you’re unfamiliar, you’re hearing it now. If you possess any “probatable” assets in your name at the time of your incapacity or death, a court visit is inevitable for your family to access them. If uncertain about whether your assets fall into this category, reach out to us for a discussion.
However, you might be seeking clarification on whether you need a Revocable Living or Irrevocable Trust. There’s a growing trend of individuals approaching us for an Irrevocable trust, prompting this article to help you understand the distinction and engage in an informed discussion about the right trust for you and your loved ones.
What Is A Trust?
At its core, a Trust is an agreement between you (the grantor) and a Trustee (someone named by you) to hold assets for the benefit of your chosen beneficiaries. The terms of this agreement, known as a “trust agreement,” can vary, and our role is to work with you in defining the terms that suit your preferences with the Trustee for the benefit of your named beneficiaries.
With a Revocable Living Trust (RLT), you, during your lifetime, assume the roles of “grantor,” “trustee,” and “beneficiary.” Legally, when you retitle your assets in the name of your RLT, nothing significant happens while you are living and mentally capable.
Once you become incapacitated or pass away with an RLT, the trust turns Irrevocable. The person or persons you’ve appointed as the successor trustee then takes control of the assets held in the trust for the benefit of the named beneficiaries. If you are still living but incapacitated, you remain the beneficiary, while in the event of your death, your named heirs become the beneficiaries. The trust may distribute outright to your beneficiaries or be held in continuing trust, offering protection from creditors, potential divorces, lawsuits, and even estate taxes if properly drafted.
If you wish to grant your beneficiaries control while retaining title protection through the trustee, it’s a nuanced process best handled with professional assistance. For this, consider incorporating a Lifetime Asset Protection Trust into your plan, a topic we discuss thoroughly in our Exclusive Legacy Planning Session™ process.
Irrevocable Trusts
An Irrevocable Trust mirrors a Revocable Trust, functioning as an agreement between a grantor and a trustee to hold property for a beneficiary. The key distinction lies in the irrevocability of the trust agreement once it becomes so. Barring a few exceptions, assets placed into an Irrevocable Trust cannot be reclaimed by the grantor.
Irrevocable Trusts prove beneficial for removing assets from your name, shielding them from future legal challenges or growth in your estate, thereby reducing estate tax implications. We may recommend Irrevocable Trusts when preparing your estate for potential long-term nursing care covered by Medicaid, or when safeguarding an estate susceptible to the estate tax or significant litigation risks.
In a Family Wealth Planning Session™, we assess your assets, family dynamics, personal preferences, and legal implications, collaboratively determining the right plan for you. Whether to include a trust, its revocability, and the timing of its irrevocability all factor into our decisions based on your unique circumstances.
Choosing a trust type requires legal expertise considering your family, assets, and goals. Relying on life insurance professionals or financial advisors for this decision or drafting without legal guidance can lead to complications. Our role is to guide you in making informed decisions and integrate insurance, financial, and tax professionals when needed.
When you engage with us, your Family Wealth and Estate Attorney, we prioritize understanding your family dynamics, assets, goals, and potential risks. We empower you through the decision-making process, creating an estate plan tailored to you and your loved ones. Reach out today to initiate this important journey.
This article is presented by Michelle Bell, an expert in estate planning and business succession services. Our office provides comprehensive legal support for businesses, assisting you in making informed decisions throughout your entrepreneurial journey and in planning for future contingencies. We also offer a specialized session where we review your business’s legal structures. To arrange this consultation, please click the following link: https://calendly.com/mcblawpllc/30min.
The information in this article is intended purely for educational and informational use and should not be considered as advice on ERISA, tax, legal, or investment matters. For advice specifically tailored to your unique situation, such advice should be sought independently from this educational content.