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What is the difference between a revocable trust and an irrevocable trust?
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That is one of the most asked questions that I get. It's both a simple question to answer, and a very complex question to answer.
The "duh" answer is that you can amend, revoke, and change a revocable trust. But you cannot change, within certain exceptions, an irrevocable trust.
So let's look at the practical answer and examine how and why they are used. Know that there are many, many different types and reasons to use trusts, and we are just scratching the surface here.
Most revocable trusts are set up for the primary purpose of avoiding probate. Probate is the government-supervised, or court-supervised, process of transferring assets that are in your name when you die to your heirs. Many people don't like probate because it can be difficult, time-consuming, and a financial drain on the estate and the heirs. So the idea is that assets in a trust don't have to go through that process. So people create a trust and transfer assets to their trust while they are alive so that when they die, those trust assets don't go through any government oversight. They set up a "revocable trust" because they want to retain every element of control over their trust after their assets are transferred to their revocable trust.
Note, however, that virtually all revocable trusts become irrevocable when the person who set up the trust dies. The person who sets up the revocable trust does not want anyone, after death, to be able to change how the trust assets are to be disbursed.
Irrevocable trusts can be more complex because irrevocable trusts typically place certain restrictions on the parties to the trust, in order to gain certain protections. Some of the protections people look for when they establish an irrevocable trust include protection from lawsuits, protections from federal estate tax, and protection from losing assets due to nursing home stays. But in order to get these protections, your trust must be worded correctly to comply with all of the rules and regulations that affect how protected you are from lawsuits, estate tax, or nursing home expenses.
This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.
Paul Rabalais
Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450