What Are the Key Differences Between Revocable and Irrevocable Trusts?

A revocable trust allows you to name assets that you want to give to a beneficiary and how you want those assets distributed. You, as the grantor, can make yourself the trustee and keep full control of the assets in the trust, and this means you can update the trust whenever you like or make changes as circumstances warrant.

An irrevocable trust can also be made during your lifetime and also sets aside assets to give to beneficiaries with instructions on how they are to be distributed. However, an irrevocable trust can’t be changed once it is set up. There are some types where it is possible to make a change if all the beneficiaries agree, but it’s very difficult to do so.

The ease with which you can change these trusts is the most important difference between them, but there are some other key differences:

There are all kinds of trusts that can be built here in Louisiana, but each of them is complicated and requires the help of a lawyer to set up properly. If things are not done correctly, your assets may not be safe from probate and may not go to your beneficiaries as you desire. Some of the more common types of trusts we see include the Domestic Asset Protection Trust and the Medicaid Asset Protection Trust. The MAPT allows you to remove certain assets from your estate for the purpose of qualifying for Medicare. Then there’s the Irrevocable Life Insurance Trust, which is created specifically to receive the payout from a life insurance policy. This removes that payout from the total value of the estate to lower the tax burden for beneficiaries.

There are many other types of trusts, and when you come talk to us, we can help you understand what will be best for your situation. Whatever type of trust you set up, it’s important to think through all the options and all the consequences of your decision, and especially when it comes to an irrevocable trust. Because it’s nearly impossible to change an irrevocable trust once it’s been set up, it’s important to go into it from a point of knowledge and understanding. With a revocable trust, it’s critical to set up a schedule to revisit the terms of the trust regularly to make sure that it’s still doing what you want.

Funding your trust is the term used for the process of putting assets into it. You are removing those assets from your estate and your name and putting them into the trust. This usually means that you’ll need to go through a legal process of changing the title on your assets from your own name to the name of your trust. As you fund your trust, you will also set out your beneficiary designations.

Given how difficult it is to set up a trust, it’s worth asking why anyone should consider making one. As difficult as it can sometimes be to set up a trust, it’s far more difficult to go through probate. Probate is enormously expensive, very time-consuming, and allows all your private information to become public record. The probate process may greatly diminish your estate, cause enormous headaches for your beneficiaries, and open them up to tax liabilities that you could avoid by setting up a trust.

The process is time-consuming, but if you have an experienced wills and trust lawyer helping you, then it should not be difficult. Trying to set up a trust on your own may be nearly impossible for the average person, but a lawyer can take care of all the legalities, paperwork, and answer questions. Your lawyer will also bring in financial professionals as needed, such as accountants. The process will go much more smoothly if you have a list of all your assets and know generally what you want to do with them and who you want to have them; however, that’s not required. You can also speak with a lawyer just to get a sense of all the possible options.

It’s important to put real estate, business interests, investments, savings accounts, and more into a trust if at all possible. What exactly you put in your trust will depend on whether it is revocable or irrevocable and what you want to happen to it after your death. An experienced attorney can help you to decide what assets you should place in your trust and which ones are best left out. Additionally, some assets are already exempt from the probate process or should not be put into a trust because of the tax consequences, so talk to an attorney.