A Series on Trusts – Part III
Revocable and Irrevocable Trusts
Over the course of the last few weeks, as a means to educate our clients and readers, we have been sharing articles about trust planning, what trusts are, and the differences between the various kinds of trusts.
Last week we discussed trusts that are created during life (Inter Vivos) and those that become effective at death (Testamentary).
This week’s article will explore the difference between Revocable and Irrevocable Trusts.
When first meeting with us, many clients have similar questions about trusts and how trust planning may be able to benefit their family. Answers to some of the questions that we receive most frequently are included below.
Question: What is the difference between a revocable trust and an irrevocable trust?
If, when, and by whom the trust can be amended, changed, revoked, or terminated determines whether a trust is revocable or irrevocable.
If the Grantor (the creator of the Trust) retains the right to terminate or modify the trust, it is a Revocable Trust. However, if the Grantor expressly forgoes the right to terminate or change the terms of the trust, it is an Irrevocable Trust.
Question: What are some of the reasons someone should create a Revocable Living Trust?
A Revocable Trust, if properly funded, generally fills the traditional role of a last will and testament, meaning that it directs to whom assets will go when the Grantor passes. However, the Revocable Trust offers benefits that cannot be achieved through the use of a will alone. Some of the benefits of a Revocable Trust are:
- Probate Avoidance: Probate is the court administrative process required for assets held by a decedent in their own name, without a beneficiary designation, at the time of their passing. Probate will typically be a more time consuming and expensive process. A Revocable Living Trust is used as a means to facilitate the transfer of assets outside of probate at death. Avoiding probate helps your heirs to save time, effort, and probate fees.
- Ease of Asset Management During Lifetime: When creating a Revocable Living Trust, the Grantor names a Successor Trustee. If the Grantor becomes incapacitated during his or her lifetime, the Successor Trustee would immediately and seamlessly transition into taking over the management of the trust assets.
- Potential Privacy Benefits: Wills that are filed for probate become a matter of public record. Assets passing outside of probate are not listed in the petition to the Register of Wills, and are therefore not as easily accessible in the public domain. However, we must note that a trust document is often still obtainable by way of being attached to the PA Inheritance Tax Return, which does become public record once filed.
A Revocable Living Trust, allows a Grantor to access, use, invest, and spend assets that are titled in the name of the trust while he or she is alive. When the Grantor passes away, the assets that were titled in the name of the Revocable Trust pass directly to, or in further trust for, the beneficiaries and bypass probate.
Question: What can an Irrevocable Trust accomplish for me and my family?
There are a variety of different types of Irrevocable Trusts that each perform one or more specific functions. We will delve into each of these different types of trusts in more detail as our Series on Trusts continues.
However, to offer a little flavor for some of the options that could potentially provide substantial value to your planning, the following are some of the types of Irrevocable Trusts that we prepare for our clients:
- Beneficiary Controlled Trust (BCT) – to provide divorce, creditor and asset protection for beneficiaries
- Irrevocable Life Insurance Trust (ILIT) – to ensure that life insurance proceeds are not part of the taxable estate
- Qualified Person Residence Trust (QPRT) – to move certain real property out of the taxable estate
- Generation Skipping Transfer Tax Exempt Trust (GST) – to facilitate multi-generational estate tax free transfers
- Medicaid Asset Protection Trust – to protect assets from nursing home spending
- Grantor Retained Annuity Trust (GRAT) – to transfer future asset growth out of the taxable estate
As you can see, the term “trust” can have many meanings. That is why we ask our clients so many questions and request so much detailed information. We work hard to find the trust planning that is right for you and your family. Together, we can develop a plan that will avoid probate, save taxes, and protect family wealth from divorce, creditors, law suits and nursing care spending.
Check back next week for the next article in our Series on Trusts to learn more about Beneficiary Controlled Trusts (BCTs) and why they are an absolute “no brainer” for nearly every person who wants to leave assets to their family and other loved ones when they pass.
The Trusts and Estates practice is a complex area of the law. This article is intended to be an introduction only and is not a comprehensive resource. You should always consult with an experienced Pennsylvania estate planning attorney or Pennsylvania elder law attorney if you are considering incorporating a trust into your estate planning. Even the smallest change in the provisions of a trust could have a monumental impact on the results seen by the grantor and his or her beneficiaries. Needless to say, Trust planning “is not something you should do at home.”
At Unruh, Turner, Burke & Frees, we have been creating custom-tailored estate plans for over thirty years. Call us today at 610-933-8069 to schedule an appointment. Whether you are starting from scratch, or have existing documents, our team of PA estate planning lawyers will provide an in-depth consultation to ensure that your planning accomplishes all of your goals.