Revocable vs. Irrevocable Trusts: What is the Difference?

Trusts play an important role in estate planning. They ensure your property is protected and that it will be distributed according to your wishes. When drafting a trust, you can choose a revocable or irrevocable trust. Each of these has its own unique benefits and features. Before drafting a trust, it is important to know the differences between these two types of documents. Below, our Tampa trusts lawyer explains in further detail.

Control and Flexibility

One of the main differences between revocable and irrevocable trusts is the level of control you will have over it, and the flexibility each provides. If you draft a revocable trust you can modify it, change beneficiaries, and even revoke the document entirely if your circumstances change. As the name suggests, though, irrevocable trusts cannot be changed or revoked after you have created it. Knowing this difference is critical when considering your long-term goals and the amount of control you want to have over your property.

Asset and Creditor Protection

Another important distinction between revocable and irrevocable trusts is the level of asset and creditor protection they provide. Revocable trusts do not offer a great deal of asset protection. The property within a revocable trust is still considered part of your estate during your lifetime. As such, if you are sued or creditors take legal action against you, it could deplete the property within a trust. Property transferred into an irrevocable trust, on the other hand, is protected from potential claims, ensuring that your beneficiaries will receive them.

Tax Considerations

Tax planning is another important aspect of drafting a revocable or irrevocable trust. Drafting a revocable trust will not provide significant tax advantages because they pass through entities. However, an irrevocable trust removes your property from your control, which can reduce estate taxes. While Florida does not impose an estate tax, federal estate taxes can still apply to estates in Florida in the estate is large enough.

Medicaid Planning

Medicaid helps people with limited income and resources cover their medical costs. Due to the fact that eligibility is income-based, there is a five-year lookback period. This means Medicaid can look back on your income and resources for the last five years. Property in a revocable trust is considered countable for Medicaid planning purposes. However, property in an irrevocable trust is not part of your estate and so, it is not counted towards your resources for Medicaid.

Our Trusts Lawyer in Tampa Can Advise On the Right Type of Trust for You

There are many factors to consider when deciding between a revocable or irrevocable trust. At Messina Law Group, P.A., our Tampa trusts lawyer can review your goals with you, help you determine which type of trust is right for your situation, and execute it properly to ensure that it will be upheld and your wishes will be respected. Call us today at (813) 492-7798 or chat with us online to schedule a consultation with our experienced attorney and to learn more about how we can help.

Source:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0736/0736.html