| This is a question that I have answered before but let’s do it again because it is fundamental to appreciating your planning options….
CLIENT QUESTION:
What is the difference between an irrevocable trust and a revocable trust? Which is better? And why? I have had several people tell me recently that they were advised to change their irrevocable trust to a revocable trust because their attorney or financial advisor said they should.
MY RESPONSE:
A trust is a CONTRACT between you and someone you trust, a trustee. The trust contract spells out what the trustee can do with your assets (assets transferred into the name of the trust) while you are living and after your death. If you can unilaterally cancel the contract, this would be a revocable trust. Naturally, if you cannot revoke the contract, this would be an irrevocable trust. Asking which trust is better is like asking what is better, an apple or an orange? A trust is just a tool in the tool shop that we bring out to solve a particular problem. The most important question you can ask yourself is “what are you trying to accomplish?” For example, if all you care about is avoiding probate, then a revocable trust will do the job with little fuss (although there are non-trust options as well). If you are trying to do tax planning or Medicaid asset protection then an irrevocable trust will be appropriate (and a revocable trust will not work at all for this purpose).
A blanket statement from an attorney or financial advisor that irrevocable trusts should all be changed to revocable is just irresponsible and silly (and frankly, I do not believe that this was actually advised).
The bottom line is that a thorough discussion about what you want to accomplish is the starting point and we can help you sort that out. The discussion will lead to picking the right type of trust for you.
I also acknowledge that over time your mind could change as to what you wish to accomplish. If so, we can talk about ways that you may or may not be able to revoke an irrevocable trust.
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