Revocable vs. Irrevocable Trust
Serving Families and Individuals in the Anniston, Gadsden, and Talladega, AL Areas
A trust is a great way to make sure that your wishes are carried out if something happens to you. There are other documents available to give other people the authority to act for you, but a trust is the best way to give both the authority to act AND the specific instructions. We call it "your rulebook" versus using the “State of Alabama's rulebook”. Unlike a will and power of attorney, a trust is the only document that can be used to carry out your wishes while you are alive AND after you pass away.
Using a trust is the best way to prevent your kids from fighting and fussing if something happens to you. Kids fighting is the most common problem that people are trying to avoid if something happens to them. If you use a trust, you can still be in control of the assets during your lifetime and decide what to do with all of those assets. The person in control is known as a trustee.
To learn about trusts and estate planning, click here to register for one of our free Estate Planning Workshops OR call us at 256-792-3193 now - we are here to help. It is the best way to learn more and get your questions answered.
Another advantage to using a trust in your Alabama estate plan is that your loved ones can avoid all of the potential probate nightmares that occur. Having a power of attorney and advanced medical directive can help avoid probate during your lifetime, but your Will has to go through probate when you die. Avoiding probate allows you to maintain your privacy because everything that goes through probate is public record. Your nosy neighbor can go down to the court and find out exactly how much money you had!
A revocable trust provides all of these advantages as well as ultimate flexibility in that you can put assets into your trust and take them back out if you like. However, the assets you place in a revocable trust are not protected from your creditors and potential predators (defined as anyone who can get your money that you prefer not to get it). Those creditors and predators include lawsuits, taxes/fees, family members and long term care costs. Because you can get the assets back, so can your creditors with a revocable trust.
On the other hand, an irrevocable trust provides all of the advantages (avoiding probate, your rulebook, etc.) and can also provide asset protection during your lifetime from your creditors and predators. The difference is that in an irrevocable trust, you must give up the right to get the assets back into your name.
So many of our clients ask “why would I want to use an irrevocable trust if I cannot have use or control or get the asset back?” The reason is that while you cannot get it back into your name, you can still use the assets, live in the home and buy others assets inside the trust. However, because you cannot get it back, your creditors and predators cannot do so either!
For example, say you are in a bad car accident and it is your fault and you get sued for $1 million. If your assets are in an irrevocable trust, you do not own them. A trust that you manage and control owns them. Therefore, the other driver cannot get them in the lawsuit!
One of the most common reasons that people use an irrevocable trust is to protect assets from the expenses of long term care. Medicaid will not pay for your nursing home care if you have assets in excess of $2,000. However, if you plan correctly, you could protect your life savings by placing assets in an irrevocable trust and get Medicaid to pay for your long term care.
In either of the above scenarios, your entire life savings could be gone. This type of planning works for about 99% of the population because they do not have estate tax issues.
To learn about trusts and estate planning, click here to register for one of our free Estate Planning Workshops or call us at 256-792-3193. You can also get a free copy of our book on the Basics of Estate Planning in Alabama by clicking the link.
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