Trusts are excellent vehicles for probate avoidance, ease of transition of funds to one”™s beneficiaries upon death, asset protection planning and estate tax planning. That being said, it is often difficult to know what type of Trust one needs! This article will discuss the basic differences between Revocable and Irrevocable Trusts.
A Revocable Living Trust (RLT) is a writing wherein the Trust Creator (also known as a “Grantor”) creates a trust for their benefit where they can also be the sole Trustee of the Trust. During the lifetime of the Trust creator they have full control over the real property, bank accounts and investments that have been titled in the name of the Trust, along with the power to amend, modify and/or revoke the trust. The predominate purpose of the Trust is to avoid Probate upon one”™s death. Probate is the process of admitting one”™s Last Will and Testament in the Surrogate”™s Court in the County where the decedent resided in order for it to be deemed legally valid after one”™s passing in order to allow the Executor to have access to the decedent”™s assets, pay bills and distribute the funds to the beneficiaries named in the Will. The probate process can take approximately nine (9) months to over a year to complete. There are also filing fees to be paid to the Court, legal fees to attorneys and one”™s estate is then a matter of public record. A RLT, and the transfer of one”™s assets to said trust, can accomplish everything a Last Will and Testament can with respect to the disposition of assets titled in the name of the RLT while avoiding the probate process and expenses, difficulties and delays associated with Probate. Additionally, any estate tax planning that can be done in one”™s Last Will and Testament can be done in a RLT.
In comparison, Irrevocable Trusts are trusts that are not Revocable. There are a number of types of Irrevocable Trusts, but most commonly they are used as a planning tool to transfer assets for the benefit of another without making an outright gift to said individual, or for purposes of Medicaid Planning and/or Estate Tax Planning. An Irrevocable Medicaid Asset Protection Trust allows an individual to protect one”™s life savings (non-retirement savings) and home from the cost of long-term care, while allowing the Trust Creator to continue to reside in their home and still benefit from the income generated by the assets transferred to the Irrevocable Trust. With this type of Trust the Trust Creator cannot also be the Trustee of the Trust. The transfer of assets to a Medicaid Asset Protection Trust creates a five (5) year penalty period for Nursing Home Medicaid and, as of the time of this writing, would create a two and a half (2 ½) year penalty period for Home Care Medicaid for applications filed after March 1, 2024. After the penalty periods run, the funds held by the trust are protected and not countable assets for Medicaid purposes.
Additionally, an Irrevocable Trust can be used to transfer assets for the benefit of a loved one, friend, child and/or grandchild so that the assets are not controlled by the Trust”™s beneficiary, but can be used by the Trustee of the trust for the beneficiary”™s health, education, maintenance and support. This is an excellent tool often used to lower one”™s taxable estate and provide for the education and future needs of a grandchild and/or child.
As you can see, there are a number of reasons to consider a Revocable and/or Irrevocable Trust!
Lauren C. Enea, Esq. is a Senior Associate at Enea, Scanlan & Sirgnano, LLP. She concentrates her practice on Wills, Trusts and Estates, Medicaid Planning, Special Needs Planning and Probate/Estate Administration. She believes that it is never too early or too late to start planning for your future and she enjoys working with individuals and families to ensure that their estate and long- term care plan best suits their needs. Ms. Enea is on the executive committee of the New York State Bar Association (NYSBA) Elder Law and Special Needs Section and is also the Co-Editor of the NYSBA Elder Law and Special Needs Section Journal. She is admitted to practice law in New York and Florida. She can be reached at 914-948-1500.
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