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Comparing Revocable Living Trusts And Irrevocable Trusts: Which Is Right For You?

Dec 11, 2023 | Estate Planning

If you’ve made the decision to work with a skilled estate planning lawyer to secure your assets in a trust, you’ve made a decision that will greatly impact your future, and that of your family’s! This shows that you have a commitment to proactive planning that can give you the peace of mind that comes with knowing that your hard-earned wealth is not only protected, but is set to be managed and distributed according to your exact wishes. 

However, even though you may be feeling confident in your decision (as you should!), you may still be unsure of some other things, like what type of trust – a revocable living trust or an irrevocable trust – most closely aligns with your unique financial situation, family dynamics, and long-term goals. If you feel overwhelmed, that’s normal; this is a pretty big step you’re taking! We’re here to help, starting with this blog.

Below, you’ll get a brief overview of each type of trust, as well as their major benefits and drawbacks you should consider as you move forward in the estate planning process. Then, we’ll provide you with the most important factors that should be examined before you make your final decision!

Revocable Living Trusts

How They Work:

You can get a pretty good idea about how this type of trust works from its name: revocable living trusts are created while you are still living. You remain in control of the terms which outline how you want your assets – like bank accounts, investments, or property – distributed after you pass. 

Pros:

These trusts come with a lot of perks, and the “revocable” part is pretty telling. It means you can tweak or change the terms whenever you feel like it, no strings attached! This flexibility can come in handy for when the family dynamics shift, such as when new additions like children and grandchildren are added, or in cases of unfortunate losses, like the passing of a spouse. 

Additionally, these trusts bypass the long, expensive, and complicated Alabama probate process, with an added bonus of keeping your personal and financial affairs private! With trusts, your family’s internal matters stay safely behind closed doors. 

Finally, trusts add a significant layer of protection to your assets. While you are able to name yourself as the trustee of your trust, it is, regrettably, far too common for individuals to become incapacitated and be taken advantage of by a family member who assumes control of your property and assets. With a revocable trust, you remain in control, even if you can’t call the shots directly. You can appoint a trusted successor trustee to step in and handle things on your behalf, essentially attaching a safety net to your financial well-being. 

Cons:

The downside of setting up a revocable living trust is that it takes more time and effort upfront, as you’ll need to go through the [process of re-titling assets (like property and bank accounts) that you want to be included in your trust. Without doing so, it’s possible that those assets could still end up in probate, despite your hard work. Also, you shouldn’t expect any direct tax benefits with this type of trust, or protection from creditors.

Irrevocable Trusts

How They Work:

These trusts are quite the opposite of the former, as the terms under which they are created are solid and may only be altered under exceedingly rare conditions. 

Pros:

Unlike revocable living trusts, assets placed in an irrevocable trust get an added layer of protection from creditors and even estate taxes, in some situations. They also won’t interfere with your Medicaid eligibility, since you technically relinquish control of them, and – as with most other trusts – they won’t get caught in the probate process. 

Cons:

It’s a bit trickier to navigate the creation of irrevocable trusts as opposed to the more user-friendly revocable living trusts – there are a lot more pieces to a much more complicated puzzle. There’s also the matter of the terms: once they are established, they’re set in stone. Essentially, you have surrendered control of your assets for good, and you’re no longer in the driver’s seat. You won’t be able to name yourself as trustee, as with a revocable living trust. So, this can feel a bit financially restrictive for some. 

What Factors To Consider In Your Decision

  1. Your purpose and goals. This is arguably the most important thing to think about when deciding whether a revocable living trust or an irrevocable trust is right for you. What is your main objective? If it’s preparing to qualify for Medicaid, for example, then an irrevocable trust is the right option. On the other hand, if it’s simply ensuring that your assets are able to be easily and efficiently passed on to your heirs, while remaining in control of them, then a revocable living trust is the way to go. Your estate planning attorney can help you get a better idea of what your real ambitions are, if you aren’t quite sure.
  1. Types of assets going into the trust. Some assets are better suited for revocable living trusts, while others would best be kept in an irrevocable trust. So, be sure to share all of the assets you plan to put into a trust with your estate planning attorney, so they can steer you in the most beneficial direction. 
  1. The level of control and management you want to have. As discussed, revocable living trusts will give you more control, while irrevocable trusts will take control away from you. This is a crucial matter that you will have to consider. 
  1. The level of flexibility you want to be able to exercise. Similarly, revocable living trusts are much more flexible, and irrevocable trusts are not flexible at all. Therefore, you will also have to make a decision on this to know which type of trust to go with.

Contact The Ladd Firm Today To Learn More!

We know you’ve still got questions, and we’ve got the answers you need! Our team of attorneys has over 50 years of combined experience and has helped countless Alabamians navigate their trust and estate planning process with an unmatched level of service and attention to their needs. Call today to learn how you can get a free phone consultation where we can go over your questions and concerns!

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