By Robert J. Green, Esq.
While trusts are not necessary for all my clients, many of them are interested in avoiding probate and after exploring all the options find that a trust will be the best way to do that. A common question comes up once a client decides to use a trust: should the trust be revocable or irrevocable? There is a lot of confusion out there about the difference between a revocable and an irrevocable trust. Let’s look at the differences and discover why for most people, a revocable trust is the way to go.
We aren’t going to get too technical here, but let’s keep in mind that at its most basic level, a trust is a contract between the creator of the trust (called the “Grantor” or “Trustor” or “Settlor”) and the person who will carry out the instructions within the trust document (called the “Trustee”). Those instructions will include what to do or not do with the Grantor’s assets and estate if the Grantor becomes incapacitated, and what to do with the Grantor’s assets and estate once the Grantor is deceased.
When a client decides to set up a trust, they have decided to become a Grantor of their trust, and they typically will also start out serving as their own Trustee. The Trustee role will eventually switch to one or more other persons once the Grantor is too incapacitated to serve as his or her own Trustee, or upon the Grantor’s death. The Trustee who steps in to serve once the Grantor can no longer serve as his or her own Trustee is called a “Successor Trustee” – though the word “Successor” is often let out when describing this person.
In the case of a revocable trust, the Grantor almost always has the right to make changes to the trust document. This means that so long as the Grantor is alive and is not incapacitated, he or she can change who will get what from the estate after the Grantor dies, who will oversee the estate as the Successor Trustee and can add or remove many other powers or provisions for the Successor Trustee to follow. This flexibility is very valuable as life circumstances change over time and the provisions Grantors desire when they are in their thirties with young children are very likely to be different than when they are in their sixties or seventies with adult children and grandchildren. As the name implies, a revocable trust can’t just be amended, it can be revoked altogether. This means the Grantor can eliminate the trust completely if he or she no longer has a reason for it.
With an irrevocable trust, the story is very different. After a Grantor establishes an irrevocable trust, he or she cannot revoke the trust, and usually cannot even make amendments to the trust. There are exceptions to this general idea, but none of them make it easy to make any changes to the trust. For example, a Grantor may have to go to court to get permission to make changes, and that permission may or may not be granted.
So, why on earth would a Grantor want to give up the right to make changes to their trust? Well, usually a Grantor would not, and that is why most trusts are revocable. However, there are special use cases where making a trust irrevocable allows for results that we cannot get out of a revocable trust. Some examples include trusts designed to protect assets that would otherwise keep someone from becoming eligible for certain programs like Medicaid or VA Aid and Attendance. We also typically use irrevocable trusts when establishing a Special Needs or Supplemental Needs Trust for a beneficiary with disabilities. For various reasons too complex to explain here, the irrevocability of these types of trusts makes them perfect for the purposes for which they are designed.
It is also possible to have a trust be partially revocable, and partially irrevocable. This is common for example in trusts established by married couples who each have their own children from prior relationships. It is also the case that most revocable trusts will become irrevocable once the Grantor of the trust dies. This makes sense because Grantors want to know that once they have died, no one else can come along and change the trust rules the Grantor set up.
There is a lot to consider when setting up a trust. This is never a one size fits all legal tool. Understanding the advantages and disadvantages of one type of trust versus another is a vital part of estate planning with trusts. Don’t hesitate to get some expert help to be sure you have your planning done the way you want.
My law firm is currently offering free telephonic, electronic, or in-person consultations concerning creating or reviewing estate planning documents.
Robert J. Green is an Elder Law, Trust, Estate, & Guardianship Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, powers of attorney, guardianships, Medicaid planning, or VA Benefit planning, contact Robert at 208-765-6555, Robert@KootenaiLaw.com, or visit www.KootenaiLaw.com.
This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.