Written By Matthew T. Kikta, CELA
Julian Gray Associates
Building an estate plan that is appropriate for your family means being familiar with the basics of various strategies. This will enable you to better identify your concerns and goals with your Certified Elder Law Attorney. This article breaks down and analyzes five things to know about Revocable Living Trusts and five things to know about Irrevocable Trusts.
Here are 5 things to know about Revocable Living Trusts:
- Revocable Living Trusts Help Assets Avoid Probate
Probate in Pennsylvania can be summarized as the court assisted process of proving ones Last Will and Testament, and for identifying, inventorying and providing a forum for creditors to make claims against an estate. Probate can be expensive, inefficient and public. A revocable trust is an entity that can transition assets upon the death of the Grantors to heirs without the need for probate. Therefore, such a trust makes the process more efficient, private and less expensive for your heirs.
- No Restrictions on Access for Grantor(s)
A Revocable Living Trust is just that; revocable. Therefore, Grantors have little to no restrictions in accessing their funds throughout their lives, amending or flat out terminating the trust if appropriate. Grantors remain in control of their property just as if the assets were still titled in their individual names.
- Grantors May Serve as their Own Trustees
Grantors may also manage their own funds within the trust by serving as their own Trustee(s). They may make investment decisions, buy and sell real estate and make lifetime distributions to their beneficiaries, unencumbered by the Trust guidelines.
- No Protection from Long Term Care Expense Exposure
Because the Grantors of a Revocable Trust retain so much control over trust assets, a Revocable Living Trust offers no protection from long term care expense exposure and will be considered a countable asset in the eyes of the PA Medical Assistance program. In fact, having one’s primary residence in a Revocable Living Trust can morph this typically Medical Assistance exempt resource into a countable resource.
- Protect Your Heirs
A Revocable Living Trust can be a great platform to create inheritance protection for beneficiaries upon the death of the Grantors. Beneficiary trusts can be created and established from the Revocable Living Trust to protect the inheritance from complications that squander wealth, such as: divorcing spouses, bankruptcy, creditors, spendthrifts or other bad decisions a beneficiary may make.
Here are 5 things to know about Irrevocable Trusts:
- Irrevocable Trusts Help Assets Avoid Probate
The Probate process is explained above in item 1 under the Revocable Living Trust section. Similar to a Revocable Living Trust, an Irrevocable Trust is an entity that can transition assets upon the death of the Grantors to heirs without the need of probate. Therefore, making the process more efficient, private and less expensive for your heirs.
- Restrictions on Trust Assets for Grantor(s) but Still Flexible
Irrevocable Trusts typically have more restrictions on the Grantors than a Revocable Living Trust. First, a Grantor cannot on their own nor be compelled by others to terminate an Irrevocable Trust, which gives an elevated level of asset protection. A Grantor also may not be able to directly remove Trust principal from the trust and place it directly back into their name. However, an Irrevocable Trust is still flexible in some ways for the Grantors. Grantors maintain the ability to change their trust distribution and management through limited powers granted by the Trust. Some Irrevocable Trusts continue to be even more flexible for the Grantor by allowing direct access to Trust income and by making their social security number the Trust tax identification number. Therefore, typically no additional tax returns are required, allowing the tax season process to remain relatively the same as before executing the Trust.
- Grantors May Serve as their Own Trustees
Just because Grantors are unable to terminate an Irrevocable Trust or have direct access to Trust principal does not mean they lose all control. Some Irrevocable Trusts allow the Grantors to serve as their own Trustee(s) granting them the ability to manage the Trust, continue to make investment decisions, and make Trust distributions to beneficiaries. Maintaining control is an important factor for potential clients and Irrevocable Trusts can accommodate this desire.
- Protection from Long Term Care Expense Exposure
One major benefit of an Irrevocable Trust that a Revocable Living Trust does not have is the potential for long term care expense exposure protection. Assets funded into an Irrevocable Trust after five years become protected from long term care spend down and are not considered a countable resource for Medical Assistance in Pennsylvania. With the average skilled nursing facility cost around $10,700 in Pennsylvania, it is evident why a Client would desire to attempt protecting assets from this potential expense and preserve their estate for as long as possible for both themselves and their heirs.
- Protect Your Heirs
Like a Revocable Living Trust, an Irrevocable Trust can also be a great platform to create inheritance protection for beneficiaries upon the death of the Grantors. Beneficiary trusts can be created and established from an Irrevocable Trust to protect the inheritance from complications that squander wealth, such as: divorcing spouses, bankruptcy, creditors, spendthrifts or other bad decisions a beneficiary may make.
Ask a Certified Elder Law Attorney which trust plan would be appropriate for your family.