A trust is a legal tool used to transfer ownership of assets from an individual to an entity. The primary purpose of a trust is to avoid probate, delay or avoid taxes, protect assets, and help with qualification for Medicaid. There are many similarities between revocable and irrevocable trusts but oftentimes irrevocable trusts can contain added benefits.
A trust, whether revocable or irrevocable, is created by the grantor for the benefit of the beneficiary. The trustee is a third party designated to manage the assets in the trust. The trustee can be a person or more than one person or could be an entity. The beneficiary can be the trustee and with a revocable trust, the grantor can also be the trustee.
A revocable trust is one in which the grantor can cancel or revoke the trust at any time. If the trust is revoked, ownership of the assets transfer back to the grantor. If a grantor passes away without ever revoking the trust, the trust becomes irrevocable. Many of our clients use revocable trusts as a way to avoid probate and maintain privacy. Additionally, revocable trusts can preserve assets for use by a disabled child, a minor or financially irresponsible child, in the case of divorce, and even pets! This type of trust can also cover situations where the grantor becomes disabled.
An irrevocable trust cannot be canceled or revoked by the grantor. The terms and conditions that are written into the trust cannot be changed or amended once the trust has been created. An irrevocable trust can avoid probate just as the revocable trust can but have the added benefits of avoiding estate taxes, protecting assets from creditors, and helping the grantor qualify for Medicaid benefits.
A trust can be an extremely useful tool in an estate plan. While some trusts can be very basic, others can be very detailed and complicated. It is very important to consult with a qualified estate planning attorney when considering setting up any type of trust.