People often ask us to explain the difference between a revocable and an irrevocable trust. That’s a tough one because there are so many kinds of trusts and even irrevocable trusts can, within the terms of the trust, allow certain things to be revoked or amended. But here’s our answer.
Most people who consider forming a trust like the concept of a “revocable” trust. The word “revocable” implies that you can amend, undo, change, alter, or revoke the trust. When someone hears that a trust is “irrevocable,” they often get concerned because that implies that things are rigid, fixed, inflexible, and control is lost.
The typical “avoid probate” trust is a revocable trust. There is no requirement that the typical “avoid probate” trust be irrevocable. Your home and other assets must simply be titled in the name of your trust when you die.
Other trusts that people establish, however, are irrevocable because the trust must be irrevocable to get the benefits that the person setting up the trust is attempting to get. For example, people with large estates will often transfer a portion of their estate each year to an irrevocable trust for the benefit of their future heirs. To exclude the assets from the taxable estate, the trust must be irrevocable. Assets that you own in your revocable trust will be included in your estate for federal estate tax purposes – but this typically applies to the wealthy.
For the middle class, many people transfer assets to an irrevocable trust to remove them from their name for nursing home purposes and to achieve Long Term Care Medicaid eligibility. Assets in your revocable trust, while avoiding probate, are Countable Resources and must be spent on your care if you enter a nursing home facility.
To make matters just a little more complicated, most people who form a revocable living trust provide, in their trust instrument, that their revocable trust becomes irrevocable upon their death. People do not want other third parties to be able to change the terms of their trust after they die.
So, whether you have a revocable trust or an irrevocable trust depends on your circumstances and what you are trying to accomplish.
The estate lawyers of Krause Donovan Estate Law Partners, LLC practice law in the areas of Probate, Wills, Estate Planning, and Trusts. We assist clients in and around Madison, Wisconsin with all matters related to estate planning, trusts, and probate matters. Our dedicated attorneys will even make house calls if you are unable to come to our office.
Contact our office by calling (608) 268-5751 to schedule a consultation or use our online contact form.