Trusts can be valuable estate planning tools for many individuals in New York. They help facilitate the transfer of assets and protect your estate and your wishes.
You don’t have to be extremely wealthy to benefit from a trust. They can be valuable for parents with minor children, including those with special needs, blended families, those looking to avoid probate and many other scenarios.
What are differences between revocable and irrevocable trusts?
Understanding the key differences is crucial for making an informed decision. These include:
Revocable trust:
- You can modify or cancel the trust at any time.
- You can act as trustee.
- You retain control over the assets in the trust.
- The trust helps in managing your assets if you become incapacitated.
- Assets in the trust still count towards your taxable estate.
- The trust does not protect assets from creditors.
- You may not qualify for needs-based Medicaid coverage.
Irrevocable trust:
- You generally cannot change or cancel the trust without court permission.
- You usually name someone else as the trustee.
- You give up control over the assets in the trust.
- The trust can protect your assets from creditors.
- Assets in the trust are not part of your taxable estate.
- You may qualify for Medicaid for nursing home care.
- The trust may require additional tax returns, adding cost and complexity.
Understanding these differences can help you decide which trust aligns with your estate planning goals.
What are the pros and cons?
Revocable trust:
Pros:
- You retain control over your assets.
- The trust can be easily modified or canceled.
- It helps manage your assets if you become incapacitated.
- It avoids probate, facilitating a smoother asset transfer.
Cons:
- Assets are not protected from creditors.
- Trust assets count towards Medicaid eligibility.
- Your estate may still face estate taxes.
Irrevocable trust:
Pros:
- Stronger protection from creditors.
- Assets do not count towards Medicaid eligibility.
- Avoids estate taxes even on large estates.
- Transfers assets outside of probate.
Cons:
- You give up much control over your assets.
- Trusts are more complex and costly to create.
- It is nearly impossible to modify without court approval.
Deciding between a revocable and irrevocable trust can be challenging. An experienced estate planning attorney can help you understand which trust best meets your needs. Their knowledge can guide you in protecting your assets and ensuring your wishes are fulfilled.
