Occasionally clients will ask me if they want a revocable trust or an irrevocable trust. Most of the time the answer is a revocable trust – but it takes extensive discussion to determine your goals, priorities, and situation to make that decision.
What is the difference between an Irrevocable or Revocable Trust
The simplest answer is a revocable trust can be changed and an irrevocable trust cannot be changed. Usually with an irrevocable trust, you lose control of your asset and someone else serves as Trustee. Often clients may want an irrevocable trust for estate tax planning purposes – or for Medicaid planning purposes. However, there could be other reasons why you may want to set up an irrevocable trust. A revocable trust can be changed as long as you are alive and competent. The flexibility of this allows for you to adjust your legacy as your life’s situation changes. Most of time with a revocable trust, you would stay the trustee (and in charge) of all of the assets in this trust.
Other Effects of these Trusts
There are many, many other differences between these trusts. Here are a couple of other differences. You should discuss with an experienced estate planning attorney to learn more.
- A revocable trust is (typically) reported under your social security number during your lifetime. It doesn’t require reporting of income under a new Tax ID Number or a separate tax return. An irrevocable trust on the other hand does usually require its own Tax ID Number and a separate tax return (if there’s enough income to the trust that would trigger the need for a tax return).
- If you have a third party (other than yourself) acting a Trustee, the Trustee is entitled to a fee if he or she chooses to take it.
- There are sometimes – sometimes – situations where an irrevocable trust can actually be changed. A revocable trust can always be changed as long as you are alive and competent.
To discuss your estate planning and Trust goals and to create an estate plan that works best for you, please contact us to schedule an appointment.