Forbes
By Christy Bieber & Adam Ramirez
November 28th, 2024
Trusts are an important tool for estate planning. They broadly fall into two categories: revocable and irrevocable trusts. But what is the difference and which is right for you?
Both a revocable and irrevocable trust can help you to facilitate a transfer of assets outside of probate. However, there are some major differences between a revocable trust and an irrevocable trust, which you must be aware of when deciding how to set up a trust and which type of estate planning tool is right for you. These differences have to do with the level of control you must give up, as well as the level of protection each type of trust provides for your assets.
Here are some examples highlighting the differences between revocable and irrevocable trusts:
- Revocable trust
Revocable trusts can be excellent estate planning vehicles, allowing you to avoid probate and distribute your assets to your loved ones according to your wishes. A revocable trust can also help you plan for the event of your incapacitation, as it allows a successor to step in and manage your assets. During your lifetime, though, you can use and spend your assets as you normally would. - Irrevocable trust
Assets placed in an irrevocable trust are removed from your control, and you can no longer spend or use them. Irrevocable trusts can be a good choice for Medicaid planning or to protect a loved one, such as with a special needs trust. Any assets moved into an irrevocable trust are no longer considered part of the estate and may not be counted against Medicaid or Social Security eligibility requirements. In certain circumstances, establishing an irrevocable trust may also reduce tax liabilities.
