The Difference Between Trusts
Entrusted Legacy Law
Apr 13, 2022
Pennsylvania - Greater Pittsburgh Area
There are two types of trusts: revocable and irrevocable.
A revocable trust is like a treasure chest where you store all of your assets during your lifetime, but you do not close the lid or lock it. You can continue to put assets in or take them out. A revocable trust allows you to maintain absolute control of the assets in the trust during your lifetime. You can also revoke or dissolve your revocable trust at any time. Most people create a revocable living trust to avoid probate. They may want to keep their assets private and avoid the public probate process.
An irrevocable trust serves different purposes: it can be used either to mitigate the tax burden of high-net-worth individuals or to prevent assets from being counted for Medicaid qualification purposes. Either way, an irrevocable trust, once formed, remains irrevocable. Consequently, once you transfer assets into this type of trust, the lid of the treasure chest is closed and locked.
Irrevocable trusts are effective because you essentially give up ownership of the assets in the trust. As the trustmaker, you appoint an independent trustee (someone other than you) who controls the trust and the assets it holds. There are several types of irrevocable trusts, each of which functions because the original owner no longer has a legal right of possession or access to the assets. Though giving up ownership and control of assets can be difficult, the significant benefits of a properly drafted and funded irrevocable trust make this document a powerful tool.
Each type of trust serves different purposes, and each can be a useful estate planning tool when it is created to meet your specific needs. But you must fully fund your trust for it to work.
Merely signing a trust document is not enough to protect your assets. You must transfer your assets into the trust by retitling deeded property or updating beneficiary designations on financial policies to name the trust as the beneficiary. Without a fully funded trust, you simply have a useless stack of paper that has no effect on your estate plan.
Editors Note: This article was submitted by Attorney Ashley Sharek of Sharek Law Office, LLC. Ashley can be reached at 412-347-1731.
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