Revocable and Irrevocable Trusts
Trusts are a contractual agreement between two parties to manage the property and dispose of the assets after the death of creator. The parties are known as the GRANTOR (the person or people creating the trust) and the Trustee (the person, people or entity charged with holding and managing the assets according to the terms of the agreement.) Trusts are considered a form of non-probate transfer because a case is not required in the probate court to make the trust effective. There are two broad categories of trusts: Revocable or Living Trusts and Irrevocable Trusts. Irrevocable trusts are generally used for tax planning or asset protection. For example, in estates where there is likely to be an estate tax liability, an Irrevocable Life Insurance trust can be used to remove assets from the decedent’s estate and to protect liquid assets for payment of the taxes due. Another example may be a Medicaid Trust which provides funds to supplement a Medicaid recipient’s income, but does not disqualify the Beneficiary from the Medicaid benefits. A Revocable or Living Trust is more common. A Grantor creates the Trust and transfers assets to it during his or her lifetime (rather than at death). The Trust is drafted to permit the Grantor nearly unfettered discretion to use or dispose of the property during his or her life. If the Grantor becomes incapacitated and can no longer manager the Trust, a successor Trustee, appointed by the Grantor at the time the Trust was created, can step in and manage the assets on behalf of the Grantor. The Trust also controls the ultimate disposition of the assets after the Grantor’s death.