My clients are always asking me which is better - an Irrevocable Trust or a Revocable Living Trust. Much to their dismay, the answer is that one is not better than the other. Irrevocable and Revocable Trusts are excellent estate and elder law planning tools that, depending on your objectives, can both be of significant value when used as part of your planning.
Revocable Living Trust
A Revocable Living Trust is a trust agreement that is amendable and revocable during one's lifetime. The creator(s) of the trust can be both the creator and the sole trustee, though alternate trustees can be appointed. This gives him or her full, unfettered control over the assets transferred to the trust during his or her lifetime. He or she can also specify to whom (and in what amounts/percentages) the assets titled in the trust are to be distributed to upon his or her demise.
At death of the creator(s), the Revocable Trust becomes irrevocable, and thus, the assets titled in the name of the trust will not be subjected to probate. The named trustees of the trust will be able to make payments of the decedent's bills, taxes and expenses and make distributions to the named beneficiaries of the trust without the court intervention that would be required with the probate of a Last Will & Testament. In essence, the Revocable Trust can accomplish all that is accomplished with the use of a Last Will while avoiding the necessity of probate.
To effectively utilize a Revocable Trust, it is absolutely essential that one's assets, such as bank accounts, stocks, bonds and real property (house, condo, co-op), must be titled (re-titled) in the name of the trust. The trust does not control assets that are not titled in its name.
The Revocable Living Trust is not the vehicle to utilize if your goal is to protect assets from the cost of long-term care (in home care and/or nursing home), however. The assets titled in the name of the trust will be considered available resources for purposes of Medicaid eligibility, and Medicaid can impose a lien/claim against these assets.
The primary reason for the use of a Revocable Living Trust remains the avoidance of the probate process and the associated legal fees, costs and delays. It also has the added advantage of allowing the alternate named trustees to manage the trust assets in the event the creator becomes incapacitated or disabled.
In my next entry I will outline the various purposes and objectives for utilizing an Irrevocable Trust.