Q. I read your recent article about wills and probate last week. I decided that I love my family way too much to put them through such a nightmare, costing them their privacy, time, frustration, and money. We’ve decided that a trust is the way my husband and I should go when it comes to estate planning. The question is: should we consider a revocable trust or an irrevocable trust? What are the differences and similarities? Thanks for your help!
A. You are wise to consider a trust for your estate planning needs. With the right set-up, assets in a trust can avoid probate and seamlessly pass from the original owner to the beneficiaries. But, what type of trust is right to meet your needs?
Why Create a Trust in the First Place?
Nearly all trusts share a common benefit – to avoid probate, the legal process otherwise required to transfer ownership of assets from a deceased individual’s name to a living beneficiary. Probate can happen when you die with a will or when you die intestate, meaning without a will. When you fund your trust with money, real estate, and other assets, you provide a way for ownership of those assets to move to a person or persons of your choice so that probate becomes unnecessary. These are additional advantages of trusts:
- You can decide exactly when your beneficiary should inherit and you can indicate those wishes in your documents. It doesn’t necessarily have to be in the weeks or months after your death. Your trustee can hold onto the assets, if you choose, and transfer them at a later time, or can make staggered distributions to beneficiaries over multiple years.
- Its terms never become a matter of public record because a living trust is not subject to probate. As you can see in the previous article about wills and probate, if you simply leave a will, it must be filed with the court to open probate. Anyone and everyone can simply look it up to find out what you owned and who inherited what.
Revocable Trust vs. Irrevocable Living Trust Plus®
All trusts are either revocable or irrevocable. With revocable trusts, you retain complete ownership and control of the property in the trust and can change all of the terms, including the trustees and beneficiaries. The primary goal of a revocable living trust is to protect your assets from the nightmare of probate. There are many types of irrevocable trusts, but by far the most common irrevocable trust that we prepare for our clients is the Living Trust Plus®, a special type of irrevocable trust that protects your assets from probate plus lawsuits plus the potentially catastrophic expenses of long-term care. The Living Trust Plus® protects your assets from the expenses of long-term care by making those assets exempt in connection with Veterans Aid and Attendance benefits and Medicaid benefits. With the the Living Trust Plus®, you give away ownership of the property to the trust, but you can retain full control of the trust assets by being trustee of your own trust, just as you would with a revocable living trust.
Here are some other distinctive characteristics:
Revocable Living Trusts
- Making changes: If you have second thoughts about a provision in the trust or if you change your mind about who should be a beneficiary, you can modify the trust’s terms with a trust amendment.
Revoke the entire trust, if you choose to do so. You can revoke or undo the entire trust if you decide that it just doesn’t serve your purposes any longer. - Plan for mental disability: A revocable trust allows you to plan for mental incapacity. Assets held in the name of a revocable living trust at the time the grantor becomes mentally incapacitated can be managed by a successor trustee, someone the grantor names to take over in the event he or she can no longer manage the trust themselves.
- Avoid probate: Revocable trusts avoid probate of the assets they hold. These assets will pass directly to the beneficiaries named in the trust agreement. There’s no need for probate court involvement.
- Protects privacy: A revocable trust protects the privacy of your property and beneficiaries when you die. It doesn’t become a public record for all the world to see. Your assets and who you’ve decided to leave your estate to will remain a private family matter. Contrast this with a last will and testament that has been admitted for probate, and becomes a public record that anyone can see and read as soon as it’s submitted to the court.
So what’s wrong with revocable trusts? The enormous downside of our revocable living trust is that all assets transferred to the trust are still considered your own personal assets when it comes to lawsuits and nursing home expenses.
- No creditor protection: A revocable trust offers no creditor protection if you’re sued.
- Medicaid planning issues: All assets in a revocable living trust are considered to be owned by you (and your spouse if you are married) for Medicaid purposes and in connection with Veterans Aid and Attendance.
- You still own the assets: The law takes the position that if you can undo or change the trust at any time, you still own the assets.
Read more about revocable living trusts here.
Irrevocable Trusts
An irrevocable trust is simply a type of trust that can’t be unilaterally revoked by the creator of the trust after the trust agreement has been signed. You can’t directly take property back that you’ve placed into it. You can act as trustee and manage and control the trust’s assets just as you can with a revocable trust. You can change the beneficiaries anytime, just like with a revocable trust.
Understanding Living Trust Plus®
Irrevocable trusts can take on many forms and can be used to accomplish a variety of estate planning goals, but the most common goals of our clients, which are all accomplished by the Living Trust Plus®, are as follows:
- Protects Assets from Creditors: The Living Trust Plus® irrevocable trust protects your assets from lawsuits, creditors, and judgments. Because you can’t take the property back after you transfer ownership of it into the Living Trust Plus®, your creditors or a judgment holder can’t reach it, either. It’s not yours any longer.
- Enables You To Qualify for Government Benefits: Assets that you own count against you for purposes of qualifying for certain government benefits, including Medicaid and Veterans Aid and Attendance.
The Living Trust Plus® functions much like a revocable living trust and maintains much of the flexibility of a revocable living trust, but protects your assets from the expenses and complexities of probate PLUS lawsuits PLUS nursing home expenses while you’re living. The Living Trust Plus® protects your assets from lawsuits, medical expenses, and — most importantly for the 99.8% of Americans who are NOT among the ultra-wealthy — from the devastating costs of nursing home care.
For most Americans over age 65, a Living Trust Plus® is the preferable form of estate planning because it includes asset protection for the person planning, and not just for that person’s children or other descendants. For purposes of Medicaid eligibility, this type of trust is the only type of self-settled asset protection trust that allows a settlor to retain an interest in the trust while also protecting the assets from being counted by Medicaid and by the Veterans Administration.
If you’re a client or potential client who would like more information about Living Trust Plus®, please call our office to make an appointment for a no-cost introductory consultation:
Fairfax Estate Planning Attorney: 703-691-1888
Fredericksburg Estate Planning Attorney: 540-479-1435
Rockville Estate Planning Attorney: 301-519-8041
DC Estate Planning Attorney: 202-587-2797
About Renee Eder
