Trusts are essential tools for managing your assets and ensuring your wishes are carried out efficiently. However, not all trusts are the same, and whether you need a trust (if you are reading this you probably do) and what type of trust you need depends on your circumstances and your goals. So, without further ado, I will introduce to you the two main types of trusts— The Revocable Living Trust and Irrevocable Living Trust.

Let’s break down the basics of these trusts to help you understand the differences, how they work and when to use them.

 

The Revocable Living Trust: Flexibility and Control

A revocable living trust offers remarkable flexibility and any adult with assets can (and should) create one. The key feature of the Revocable Living Trust in Rhode Island is that it can be altered or terminated anytime while you are still alive. With an experienced estate planning attorney, a Revocable Living Trust can be created for married or unmarried persons, making it a versatile option for estate planning.

1. You Play All of the Roles

The beauty of a revocable trust is all the assets you place into it remain accessible for your use as long as you’re alive. When you create a Revocable Living Trust, your own assets are transferred into the trust, you are the initial trustee and a beneficiary of your trust. This means you have the power to:

• • Put assets in and take assets out of the trust to use for your benefit
  • Name and change your successor trustee(s)
  • Control how your ultimate beneficiaries receive their inheritance

2. Fully Customizable

A Revocable Living Trust can be fully customized to cover many different situations, including: planning for an incapacitated surviving spouse, child, or grandchild; and ensuring your legacy goes to the intended beneficiaries in cases of divorce and remarriage. An experienced Estate Planning Attorney will ask the probing questions to determine what customizations should be built into your Revocable Living Trust.

3. Flexibility

The flexibility of the Revocable Living Trust allows you to adapt to changing circumstances and financial needs, such as:

• • Avoiding Guardianship and Conservatorship: If set up correctly, a revocable trust can help you avoid the need for a guardianship or conservatorship during your lifetime, ensuring your financial matters are in capable hands.
  • Avoiding Probate: After your passing, a revocable trust will bypass the probate process, saving time and reducing complexities for your beneficiaries.

However, there are things the Revocable Living Trust cannot do, namely, it will not provide protection against creditors’ claims and does not help you with long term care (Medicaid) planning. If you have these types of concerns, you will want an Irrevocable Trust.

 

Irrevocable Living Trusts: Protecting Assets for Beneficiaries

The Irrevocable Living Trust does not offer the same flexibility and control as the revocable trust. As the name suggests, it cannot be altered or terminated once it’s created, except under limited circumstances usually involving a court action. The primary purpose of an Irrevocable Living Trust is to preserve assets for the benefit of your chosen beneficiaries by removing those assets from your control. Just like the Revocable Living Trust, you are the trust creator, you may be the initial trustee (though many irrevocable trusts require that you name a third party as a trustee), and you may be a beneficiary of your trust, but distributions to you will be very limited.

There are many reasons people chose to set up an Irrevocable Living Trust, including:

• Creditor Protection: When you place assets in a correctly drafted irrevocable trust, your creditors cannot access those assets. This is because distributions can only be made to certain beneficiaries at the discretion of the trustee.
• Medicaid Planning: If you’re concerned about protecting your assets for Medicaid eligibility, you must transfer your assets into an Irrevocable Living Trust at least five years before applying for Medicaid. After this five-year waiting period, those assets become unavailable for your use to pay for your care.

Just like the Revocable Living Trust, the irrevocable kind can help you avoid guardianships, conservatorships and probate.

The Revocable Living Trust offers flexibility and control during your lifetime, but doesn’t shield your assets from creditors or help you with Medicaid planning. The Irrevocable Living Trust provides protection for your assets, and it is an essential tool for Medicaid planning, but it comes with the trade-off of limited control once the trust is established.

Before you make an important decision, speak with an experienced estate planning attorney

Whether you should choose a revocable or an irrevocable trust depends on your specific goals and needs. An experienced estate planning attorney will help you get started on a trust-based estate plan that works for you. Contact Attorney Jill M. Santiago by clicking the link below.