- Cole Gorman
Two key differences between an irrevocable and revocable trust
You can use a number of estate planning tools to achieve all sorts of goals. Some help to shield assets from creditors while others can reduce tax obligations. Determining the right combination of tools to make the most of your estate plan will depend on your wishes and the details of your estate.
One tool that can be useful is the trust. The trust is, essentially, a legal tool that guides the use of certain assets. Although those who wish to create a trust can consider many different types to achieve different goals, trusts fit into one of two categories: irrevocable and revocable. The main differences between these types of trusts are:
#1: Flexibility. The owner of a revocable trust can change the terms of the trust at any time. The owner of an irrevocable trust does not have this freedom. This can include changing trust beneficiaries and the assets used to fund the trust.
#2: Protection. In exchange for this loss of control, the owner of an irrevocable trust generally receives more asset protection. The owner can set up an irrevocable trust to shelter assets from tax obligations or from the reach of creditors. In some cases, the owner may fund an irrevocable trust to help reduce one’s estate to qualify for Medicaid and other benefits. The owner must structure this trust carefully, as very specific rules apply to this type of estate planning.
The purpose of the trust will depend on the language used to draft the trust. As a result, it is generally wise to seek legal counsel experienced in this niche area of estate planning law to help better ensure your wishes are met.