How to Choose Between an Irrevocable and Revocable Living Trust

Estate planning for many Jacksonville residents can feel overwhelming, especially when deciding whether a revocable living trust or an irrevocable trust is the best option. Trusts come in all shapes and sizes, and many are formed with specific purposes in mind.  This article explains the key differences between irrevocable and revocable living trusts so that you can make an informed decision that best suits your needs.

What Is a Revocable Living Trust?

A revocable living trust is a flexible estate planning tool that allows you to maintain control over your assets during your lifetime. You can modify, amend, or even revoke the trust at any time, making it a great choice if you anticipate changes in your financial or family situation. This can be considered as the foundational piece to your estate planning. Every good estate plan should have one.

Key Benefits of a Revocable Living Trust:

• Avoids Probate: Unlike a will, assets in a revocable trust pass directly to your beneficiaries without going through the time-consuming and costly probate process.
• Maintains Privacy: Probate is a public court process, whereas a trust remains private.
• Allows for Incapacity Planning: If you become incapacitated, a successor trustee can step in to manage your assets without court involvement.
• Flexible and Adaptable: You can make changes as needed throughout your life.

Key Drawbacks of a Revocable Living Trust:

• No Asset Protection: Because you retain control over the trust, creditors and lawsuits can still reach the assets. That said, there are other asset protection tools that are easily available, especially in Florida.
• Still Subject to Estate Taxes: Assets in a revocable trust are considered part of your taxable estate. That said, very few people have an estate tax problem.

What Is an Irrevocable Trust?

An irrevocable trust, on the other hand, cannot be changed or revoked once it’s established. While this may seem restrictive, it offers significant benefits, particularly for asset protection and tax planning.

Key Benefits of an Irrevocable Trust:

• Asset Protection: Once assets are transferred into an irrevocable trust, they are no longer considered your personal property, shielding them from creditors and lawsuits.
• Estate Tax Reduction: Assets placed in an irrevocable trust are removed from your taxable estate, potentially reducing estate taxes.
• Medicaid Planning: In some cases, an irrevocable trust can help individuals qualify for Medicaid by reducing countable assets (subject to a five-year look-back period).

Key Drawbacks of an Irrevocable Trust:

• Lack of Flexibility: You cannot easily alter the trust or reclaim assets once they are transferred.
• Loss of Direct Control: A trustee, rather than you, manages the trust assets.

Choosing Between a Revocable and Irrevocable Trust

The decision comes down to your specific estate planning goals. Consider this chart to help you compare the two types of trusts based on your unique circumstances.

When to Choose a Revocable Living Trust:

• You want to avoid probate while maintaining full control of your assets.
• You want flexibility to adjust beneficiaries or terms over time.
• Asset protection and tax reduction are not primary concerns.

When to Choose an Irrevocable Trust:

• You want to protect assets from creditors, lawsuits, or long-term care costs.
• You are concerned about reducing estate taxes.
• You do not anticipate needing direct access to the trust assets.

Schedule a Call with Team Legacy for Help Making the Right Choice

Every Jacksonville family’s estate planning needs are unique. Whether you’re considering a revocable living trust or an irrevocable trust, consulting with the experienced estate planning team at Legacy Planning Law Group can help you make the best decision for your future. Schedule a Discovery Call with Team Legacy to Get Started.

Reference: Kiplinger (July 14, 2021) “What to Consider When Deciding Between a Revocable and Irrevocable Trust”