When I talk about trusts – and specifically irrevocable ones – many people quickly reply that they don’t like irrevocable trusts because they don’t like the idea that they are losing control of their assets. They much prefer a revocable trust. Each type of trust has its uses but first, let’s look at what revocability actually means.
A trust is established by a grantor, sometimes referred to as a trustor, by way of a written agreement. Revocability means the trust can be revoked by the grantor who can basically “tear up” the trust agreement and take all the assets back. Revocability also means the trust can be amended by the grantor (ie. the terms of the trust can be changed).
Revocable trusts are typically used to avoid probate. Assets held in the trust are not subject to state probate proceedings, making for immediate unrestricted access to the trust assets when the grantor dies. Revocable trusts also may be created to minimize or in some cases avoid estate taxes by creating other trusts into which assets pour over after the grantor’s death.
Revocable trusts, however, do not protect assets from the cost of long term care, which is a primary reason clients come to us seeking guidance. That leads to a conversation about irrevocable trusts which can be used to protect assets from the cost of long term care, which gets us back to the conversation about irrevocability meaning the client loses control because he/she can’t revoke or amend the trust.
But, is that really true? No, it isn’t. I’ll explain what I mean next week.