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Home » Can You Revoke Your Trust?

Can You Revoke Your Trust?

October 19, 2021 by Stephen Unsworth

irrevocable trustWhen you are planning your estate, you should understand your options so you can make fully informed decisions. With this in mind, a lot of people make assumptions about trusts that are not accurate, and the matter of revocability is sometimes misunderstood.

Irrevocable Trusts

There are in fact trusts that you cannot revoke under most circumstances. If you establish an irrevocable trust, you cannot act as the trustee, so you would not control the trust.

This is called “surrendering incidents of ownership” in legal parlance. The loss of control can seem disconcerting on the surface, but there are reasons why you may want to use an irrevocable trust.

Medicaid eligibility is important to a significant percentage of elders because the program will cover long-term care. Medicare does not pay for in-home care, and it does not cover the custodial care that nursing homes provide.

Since it is a need-based program, you cannot qualify if you have more than $2000 in countable assets in your name. As a response, you can convey income-producing assets into an irrevocable Medicaid trust.

You would have no access to the principal, but you could receive distributions of the trust’s earnings before you apply for Medicaid. If you fund the trust at least five years before you seek eligibility, the assets would not count.

There is a federal estate tax that is applicable on the portion of an estate that exceeds $11.7 million. This multimillion-dollar figure is called the credit or exclusion. In Vermont, we have a state-level estate tax as well, and the exclusion this year is $5 million.

If you are exposed to either or both of these taxes, you could convey assets into an irrevocable trust. In so doing, you would be removing the assets from your taxable estate, and there are specific trusts that facilitate transfers in a tax discount.

These would include grantor retained annuity trusts, qualified personal residence trusts, charitable lead trusts, and generation-skipping trusts.

Revocable Living Trust

In addition to the irrevocable trusts, there is also the revocable living trust. Assets in this type of trust are countable for Medicaid eligibility purposes, and they would be part of your taxable estate.

There is no asset protection while you are living, but these trusts are beneficial in other ways.

You would be the trustee of your living trust while you are alive and well, and you would name a successor to assume the role after your death. To account for possible incapacity, you can empower the successor to administer the trust if you become incapacitated.

After your passing, the successor trustee would distribute assets to the beneficiaries in accordance with your wishes. You can set the terms of the distributions when you draw up the trust, and you do not have to provide lump sum inheritances all at once.

Some people want to spread out the distributions over time to make sure that the beneficiaries do not burn through their inheritances too quickly. Another benefit is asset protection, because the principal would be protected from the beneficiaries’ creditors.

Probate is a legal process that is initiated when a will is used as an asset transfer vehicle, and it takes place under the supervision of a court. It will typically take about eight or nine months at minimum, and more complicated cases can take considerably longer.

Expenses accumulate during probate, and they reduce the value of the estate. Another negative is a loss of privacy, because the records are available to anyone that wants to access them. When you use a revocable living trust to facilitate asset transfers, the probate court is not involved.

Schedule a Consultation Today!

As you can see from this post, there are different methods that can be used to facilitate asset transfers, and there are others that we did not examine. Since there are multiple approaches that can be taken, you should gain a thorough understanding of your options.

When you choose our firm, we will learn about your family dynamic, your financial situation, and your objectives. We will make recommendations, and at the end of the process, you will go forward with a custom crafted plan that is ideal for you and your family.

If you are ready to get started, you can schedule a consultation at our Essex Junction, VT estate planning office if you call us at 802-879-7133. There is also a contact form on this site you can use to send us a message.

 

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Stephen Unsworth
Stephen Unsworth
Stephen A. Unsworth is admitted to practice in both Vermont and Maine, and has more than 30 years of experience in estate planning and business law. His mission is to provide quality estate planning services, including assistance with Living Trusts, Wills, Medicaid Planning, Probate, Trust Administration, Powers of Attorney, Special Needs Planning, and Family Limited Partnerships.
Stephen Unsworth
Latest posts by Stephen Unsworth (see all)
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Filed Under: Uncategorized Tagged With: Estate Planning

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