This is not entirely true, and in this post, we will provide some clarity.
There are some trusts that you cannot revoke once they have been established. Generally speaking, you would not be able to change the terms of this type of trust.
The trustee is the administrator of a trust, and the person that establishes a trust is called the grantor. If you are the grantor of an irrevocable trust, you would not be able to act as the trustee, and you would have no direct access to the principal.
This being stated, the grantor can receive monetary distributions from some irrevocable trusts.
Why would you choose to use a trust that you cannot revoke? There are reasons why you may want to surrender incidents of ownership in a legal sense.
Many elders need a level of care that only a nursing home can provide. Medicare does not pay for a stay in one of these facilities, and they are very expensive. Medicaid is set up to cover long-term care costs.
You are probably aware of the fact that Medicaid is only available to people with a significant level of financial need. To qualify for Medicaid to pay for a future stay in a nursing home, you could convey assets into an irrevocable, income only Medicaid trust.
As the name would indicate, you could receive income that is generated by the assets in the trust, but you would not be able to touch the principal or corpus. If you apply for Medicaid, the assets in the trust would not count, because you surrendered incidents of ownership.
Another reason why people use these trusts is to get assets out of their own names for estate tax efficiency purposes. There is a federal estate tax, and here in Vermont, we have a state-level estate tax. These taxes are only a factor for wealthy families, and we will not get into the details here.
These are two of the reasons why people use irrevocable trusts, but there are a number of others.
Revocable Living Trust
The other type of trust is a revocable living trust, and these devices are commonly used by people that are not extremely wealthy.
You can act as the trustee and the beneficiary while you are alive and well when you have a living trust. Of course, the name is self-explanatory when it comes to the ability to revoke the trust.
You can in fact change the terms of a living trust at any time, and you can add or remove property as you see fit. Assets in a living trust would count if you apply for Medicaid, and they would be part of your estate for estate tax purposes.
One of the main reasons why someone would use a revocable living trust is to avoid probate. A will would be admitted to probate, which is a costly and time-consuming legal process.
The grantor of a living trust can include spendthrift protections, and the trustee will benefit from the asset consolidation during the administration process.
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As you can see, there are multiple tools in estate planning tool kit, and solutions exist to address any and all objectives. This is why it is important to discuss your options with a licensed estate planning attorney.
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