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When it comes to estate planning, one of the big decisions is choosing between revocable and irrevocable trusts. Both types of trusts are key tools that can help manage and distribute your assets according to your wishes, but they serve different needs and offer different advantages. When considering a revocable vs irrevocable trust for yourself or a loved one, it’s important to understand which one aligns best with your long-term goals.

Understanding Revocable Trusts

A revocable trust, often called a living trust, is a flexible legal entity you create to hold your assets. As the grantor, you retain the power to control the trust’s assets and can make changes or dissolve the trust at any time during your life. This flexibility is a major perk, making revocable trusts a popular choice for many.

Advantages of Revocable Trusts:

• Control: You keep full control over the trust’s assets, allowing you to adjust terms or revoke the trust entirely if your situation changes.
• Probate Avoidance: Revocable trusts skip the probate process, speeding up the distribution of your estate and keeping it private, away from public probate records.
• Flexibility: These trusts can be modified to adapt to life changes like marriage, divorce, new children, or changes in financial status, ensuring your estate plan keeps pace with your life.

Understanding Irrevocable Trusts

In contrast, an irrevocable trust transfers ownership of your assets to the trust and is managed by a trustee. While the idea of giving up control of your assets may seem daunting, a key aspect to consider is the selection of a trustworthy trustee. This individual or entity will manage the assets according to the trust’s terms, making their integrity paramount. A trust protector should also be selected, providing an additional layer of security and ensuring the trust’s intended purpose is upheld. In extreme circumstances or the event of trustee misconduct, the trust protector can petition the court for intervention.

Once established, these trusts typically can’t be changed without beneficiary consent. However, it’s important to note that New Jersey law does allow for changes to trustees, offering some flexibility. New Jersey Uniform Trust Code (NJ UTC) permits changing trustees and even amendments to irrevocable trusts. However, these actions are subject to conditions like the consent of the involved parties and the preservation of the trust’s primary objective.

Advantages of Irrevocable Trusts:

• Asset Protection: The assets in an irrevocable trust are protected from creditors and legal judgments, making this type of trust a strong option for safeguarding your wealth.
• Tax Benefits: Assets placed in an irrevocable trust are removed from your taxable estate, which can significantly reduce estate taxes upon your death.
• Government Benefits: These trusts can help qualify for Medicaid by excluding the trust’s assets from your personal asset count, preserving more of your estate for future needs.

Revocable vs Irrevocable Trust – How to Choose

The decision between a revocable vs irrevocable trust often boils down to a choice between flexibility and protection. If maintaining control over your assets during your lifetime is a priority, a revocable trust offers that versatility. However, if protecting your assets from taxes and creditors, or maintaining eligibility for government aid programs like Medicaid is more critical, an irrevocable trust may be the better choice.

• Tax Considerations: Revocable trusts don’t typically offer tax benefits since the assets are still considered part of your estate.
• Impact on Government Benefits: Assets in a revocable trust count towards Medicaid eligibility. If the value of those assets exceeds Medicaid limits, you could be denied benefits. Assets in an irrevocable trust are protected from being considered when applying for Medicaid benefits.

Can’t Decide – Waypoint Legal Can Help

Choosing the right trust involves careful consideration of your estate planning goals, family dynamics, and financial situation, ideally with the guidance of an experienced elder law attorney.

At Waypoint Legal, we specialize in personalized estate planning, helping you navigate the complexities of choosing the right trust for your needs. Our team is here to assess your situation and ensure that your estate is managed exactly as you envision.

If you’re considering setting up a new trust or updating an existing one, reach out to schedule a consultation. Let us help you make informed decisions that provide peace of mind for you and your loved ones for the future.