Difference Between Revocable Trust and Irrevocable Trust

Elder Law Attorney Jason Neufeld Elaborates on the Differences Between Revocable Trusts and Irrevocable Trusts - Learn more about trusts from Elder Needs Law 👇
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Transcript:
What's the difference between a revocable living trust and an irrevocable trust, we get these concepts often confused. a revocable living trust is a very valuable estate planning tool. The idea is you take assets that you have now you put them into your name, whether it's your house, whether it's your bank accounts, all sorts of assets, put it into a revocable living trust that you are both the trustee of, and that you are both the beneficiary of.
So you are the creator of the trust, you are the trustee of the trust, you are the beneficiary of the trust while you're alive. And the benefit to that is when you become if you become incapacitated, you can designate someone to take over and be in control of all those assets that you've placed in the trust. And then the reason why most people use a revocable trust is after you have passed away, the assets remain in that trust. It then becomes irrevocable. And the trustee has to follow the instructions that are left behind, which says who gets what and when. And you get to do that without going to probate court.
Because if you are relying on your state planning just based on your will, that just means you're doing a probate court, and then the judge follows your will. And that takes time that takes a lot of extra money. So a revocable trust, avoid that time, expense, and hassle.
All right, that's a revocable trust. Revocable trust also offers nothing by way of asset protection to you. Assets that are in your revocable living trust, from a creditor perspective, are in your name, and attachable, and liable and garnishable and all that good stuff, there's really no protection for your assets while you are alive. But when you pass away, the revocable trust, again becomes irrevocable. And if it's drafted properly, the beneficiaries of those assets can enjoy some asset protection.
So again, that's only after you've passed away. Now contrast that with an irrevocable trust, we often are dealing with these in a Medicaid planning context, I work with people who want to plan in advance to protect what assets they've worked so hard for and want to make sure that they don't have to waste all of it on home healthcare is paying for home health care facility, facility care or nursing home care, because these long term care costs can be quite expensive.
So for that, we turn to irrevocable trusts and irrevocable trust offers asset protection while you're alive with it's a little bit over simplistic, it's assuming you're not already in debt, right? You can't, if you have a debt, and you have a creditor who's kind of like looking to attach, you can't just throw everything in an irrevocable trust, and expect it to be fine. So it's not really what we're not doing for people who have debts now. We're doing it for most people who really the biggest threat to your bank account is likely not these other third parties, it's likely the cost of long term care.
So an irrevocable trust, the idea is that while you're the creator of the trust, you are not the trustee, and you are not the beneficiary of it. So because you have no control over what happens to the assets in that trust, creditors can't touch it. And also, after five years, Medicaid cannot count it against you.
There's a lot of benefits to that. Now, a lot of people get very nervous when I bring up the fact that they can't be the trustee for their own trust. And that is true. So we're not doing this. We're not we're not doing this willy nilly. We're doing this after careful thought and consideration. So a few security features I build in.....