Trust vs. Will
When looking at a revocable trust versus a will, the advantage of the former becomes clear when it comes to the issue of probate. You should always speak with a licensed
estate lawyer before you make changes to your plan. A will becomes public record. It has to be registered in court of law. Then it has to be proven to be the legitimate record of a deceased person’s wishes. A probate can be a complex or simple matter. This will depend on the size of the estate, as well as the number of conflicting claimants – if any. A will cannot be executed while it is under probate. This means beneficiaries cannot enjoy the benefits of the assets until the process is complete.
In contrast, assets held in a trust at the time of a grantor’s death are deemed outside the probate process. As such, they pass directly to the trust beneficiaries. A probate can be an expensive and time-consuming process. With the right type of trust in place, your beneficiaries are protected from having to undergo a probate.
A revocable trust is a private document; unlike a will, which becomes a public document once it’s registered for probate. Thus, a revocable trust gives your beneficiaries a considerable measure of privacy when they likely need it the most.
What is an Irrevocable Trust?
The definition of an irrevocable trust is simple: once established, the one who created the conditions of an irrevocable trust cannot directly alter it. In can usually be changed, but the grantor or beneficiaries are not the ones who can change it directly. If it you could change it directly, without third party intervention, then a judge could order you to change the beneficiary. Then the new beneficiary of the trust would be person who just won a lawsuit against you. That is how an irrevocable trust provides asset protection. It can tie the judge’s hands from forcing you make changes that would release trust assets to your legal enemies.
To continue, the grantor also places ownership of the assets into the irrevocable trust. The trustee is in charge of the assets, as well as the management of the trust. Why would anyone transfer assets they have worked so hard for all their life into a trust? There are several reasons behind this, and three of them are given below. But first, a quick word on the unchangeable nature of an irrevocable trust’s conditions.
A grantor can maintain a modicum amount of control over the assets of an irrevocable trust through a careful wording of the trust deed. For example, a grantor can impose specific conditions that must be met before a benefit can be paid out. It could be by the time a beneficiary reaches a certain age or achieves a particular milestone. A grantor can also stipulate for income from the trust to be used solely for an explicit purpose. It could to pay for college, start a business, or for travel, and other such conditions. When the conditions are not met, no benefit will be disbursed to the named beneficiaries. A flexible wording of the trust deed allows the grantor to address unknowable future scenarios or changes in circumstances. This is one way a grantor can continue to ‘control’ an irrevocable trust without giving up its most potent features.
Why Use an Irrevocable Trust?
One of the main reasons people set up irrevocable trusts vs. revocable ones is to protect their assets from estate taxes. Once a grantor transfers assets to an irrevocable trust, he or she ceases to be the owner of the assets. Thus, these assets can no longer be taken into account when determining the value of a grantor’s estate. This makes perfect sense, since the grantor no longer owns the assets – the trust does.
An irrevocable trust can also have a strong asset protection benefit. A nuisance plaintiff, or even a grantor’s legitimate creditor, cannot touch the assets held in an irrevocable trust. Again, this is simply because these assets do not belong to the grantor anymore. By divesting themselves of asset ownership, grantors are able to protect their assets from legal claims – predatory or otherwise. It’s true that an aggressive claimant can sue a trust to distribute benefits to them rather than a debtor-grantor. But even here, a deliberate wording of the trust agreement can provide protection from such an attack.
Transferring assets to an irrevocable trust can help you qualify for certain government assistance programs with an asset limit. This would include long-term care assistance from Medicaid. Keep in mind however, that Medicaid currently has a five-year look back period. This means, assets that were transferred to a trust less than five years before a grantor applies for government assistance are not protected. In this case, you may be forced to spend them down in order to qualify for assistance. If you clear this five-year look back period, the assets in your irrevocable trust are protected. They can pass on to your beneficiaries rather being spent down in order for you to qualify for government assistance.
Asset Protection Benefits
The asset protection benefit of irrevocable trusts comes mainly from the separation of the grantor from his or her assets. Ironically, it is in giving up ownership of their assets that grantors are able to protect them the best. An irrevocable trust that has been properly established offers several benefits. Assets in an irrevocable trust are shielded from creditor claims, estate taxes and a Medicaid spend-down. A revocable trust allows a grantor to retain a fair amount of control over trust assets. This is an expedient way to avoid a probate battle. It also ensures a smooth transition to a successor trustee should a grantor suddenly become incapable of administering the trust. A revocable trust, however, does not have strong asset protection features. It remains part of the estate, and assets in such a trust can generally taken when the grantor is sued.
Free Consultation with a Trust Lawyer
If you are here, you probably have a business law issue you need help with, call Ascent Law for your free estate law consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506