Living trust vs. Irrevocable Trust
A Living Trust allows you to manage your property while you are alive. If you become incapacitated it will allow a trustee to take over the management of the trust’s property. The trust uses the grantor’s social security number for tax purposes. After you pass away the trust will become irrevocable and will need an EIN (employee identification number). The trust’s assets will transfer to the beneficiaries of the trust without first going to property court. Since the assets transfer without going to probate court the terms of the trust and the trust assets transfer remains private.
With a Living Trust you are able to dictate when and how the property will transfer to the beneficiaries. This is called “Controlling your assets from the grave.” This is good if you have a beneficiary that is under 18 years old or you do not want your beneficiary to receive the property right after you pass away. Examples: If someone is on government assistance, has a lot of debt, special needs, or it might be that the person is applying for financial aid for college. A Living Trust will help with all of these problems. A Living Trust normally does not protect your assets from bankruptcy, law suits, or divorce because the trust is revocable.
An Irrevocable trust can’t be modified or terminated very easily. In order to change the terms of the trust, all the beneficiaries would need to agree to the change, including any successor beneficiaries. This can become a problem when you name a charity as one of the beneficiaries. The grantor (person who creates the trust), trustees, and beneficiaries could also seek a court order allowing the modification or termination of the trust.
An Irrevocable trust are used for estate and tax purposes. Once the grantor transfers the ownership of assets to the trust, they are no longer the owner for estate or taxes purpose. The Irrevocable trust will receive its own EIN and not use the grantor’s social security number. This will elevate the grantor from paying estate taxes on the assets and also any liability (bankruptcy, law suits, or divorce). Also, if the assets are transferred 5-years in advance of applying for Medicaid, those assets can’t be counted as assets or required to be spent down. However, if the grantor is also a beneficiary of the trust, those assets that they are a beneficiary of, will be included for estate, tax, and Medicaid purposes.
Summary: Living Trust (Revocable) Irrevocable
Avoid Probate? Yes Yes
Change the terms ? Yes No – not easily
Who owns property? Grantor Trust
Assets Protection? No Yes
Assets Taxed as? Grantor – SS# Trust- EIN
Privacy? Yes Yes
Dictate when and how
beneficiary receives assets? Yes Yes
if incapacitated? Yes Yes