You may know that one or more trusts can strengthen your existing estate plan, but what kind of trusts do you need? Many assume a revocable trust is always the better option due to its flexibility. However, this is not always the case.
Sometimes, an irrevocable trust that cannot be altered offers significant advantages that a revocable trust cannot.
Robust asset protection
Revocable trusts can protect assets to a limited degree, but they may not meet your needs if protection is your most pressing goal. In contrast, an irrevocable trust may offer more creditor protection because the grantor no longer owns the assets it contains. The property within a revocable trust is still part of the grantor’s estate and accessible to creditors.
Estate tax reduction
Irrevocable trusts are particularly effective for estate tax planning, and again, this is because assets transferred into the trust are no longer part of the grantor’s taxable estate. On the other hand, revocable trusts do not offer the same tax benefits since the assets remain part of the grantor’s estate until death.
Government benefits eligibility
Wise estate planning involves considering the bigger picture – what if you need government benefits like Medicaid in the future? Irrevocable trusts can help you qualify for benefit programs. Revocable trusts do not change the size or value of an estate, meaning its assets count toward program eligibility limits.
The takeaway is: Do not discount any estate planning tool merely due to word of mouth or online comments. Instead, explore all your options with someone who understands that different families often have different needs.