When we first begin working with a client who is setting up their estate plan and, more specifically, building a trust, the number one question we always get is whether they need a revocable or an irrevocable trust. For us, this is always an interesting and fun conversation because as soon as the client hears the difference, they immediately know which tool they need.
Not to give it all away, but the standard option is the revocable trust; however, there are certain instances in which the irrevocable trust is needed—there is no one-size-fits-all approach to estate planning. So, which trust is right for your specific circumstance? Press play and listen in for more details, and of course, when you meet with your estate planning attorney, they will help ensure you’re making the right decision to protect your loved ones and your future.
Time-stamped Show Notes:
0:00 Introduction
0:55 A revocable trust is what we typically do in our practice, which gives you control over everything in your trust, you are in charge.
1:10 An irrevocable trust is used to give everything away; you can’t change it.
1:58 Next, Madison discusses in more detail why you would want to use an irrevocable trust and how they are set up.
4:40 If you’re worried about being sued, that may be another issue. Your trust isn’t generally going to protect you from something like that. Here’s what you need to know.
Transcript:
Hello and welcome to Absolute Trust Talk. This is our podcast here at Absolute Trust Council. I’m Kirsten Howe, and here with me today is Madison Gunn. And we get this question often enough that we kind of thought we talked about it today. And, I think that a lot of people, before they meet with their estate planning attorney for the first time, Google around, and they want to know or they’ve heard some things. I know I should have a trust because my financial advisor told me I should have a trust, or my next-door neighbor told me I should have addressed so they started reading about trust. And we get this question. Should I have a revocable trust or an irrevocable trust? Which is a fun question from our side of the table. Madison, what do you think about that?
Yeah, it’s always a fun conversation to explain because as soon as you explain it, they’re like, oh, yeah, yeah, no, I don’t want that. Because a revocable trust is, that’s what we do. We do standard revocable trusts for their first state planning; you have control over everything, nothing changes for you, you put everything in your revocable trust, you can change it, you’re in charge of it. You get to keep all of your assets, a revocable trust; you’re giving every irrevocable trust; you’re giving everything away. It’s right can’t change it. You’re gifting it away. And it’s irrevocable. And right. So, the revocable trust is the basic component of a standard estate plan. Its job is to make sure that what you want to happen to your stuff will happen when you die. And it’ll be simple. It’ll be easy, it won’t cause everybody to have to go to court. That is, the basic estate planning vehicle is the revocable trust. That’s what everybody has. Irrevocable trusts are for other purposes. And those purposes aren’t relevant to everybody now; most people don’t ever need that. Now, let’s start with the uses of irrevocable trusts, to kind of illustrate that point.
They’re usually for asset protection, so you’re worried about getting sued, you know, or they’re for taxes, estate taxes, people who are worried about estate taxes. And so there are very specific situations that are for very specific people. Certain situations are not for everybody. So they’re set up in very particular ways. Either somebody creates one, they create an irrevocable trust by gifting their assets to somebody else, they set up that irrevocable trust, or it’s done through their revocable trust; when they die, the revocable trust becomes irrevocable, and there might be an asset protection trust for someone else in there. So there might be a trust set up for one of their children, that’s asset protection; they’re worried about that child being sued in the future, something like, okay, and we we kind of recently touched on an example of such a trust. In a recent episode, we discussed Cher’s petition for conservatorship over her son. And he, part of the problem was that he is the beneficiary of an irrevocable trust that was set up for him when his father died, apparently, and so so that’s just an example that when somebody dies, and they leave money for somebody else in trust, that would be an irrevocable trust, right. But Madison is also saying that you can while you are alive, set up an irrevocable trust. The reason it’s not for everybody is because you are giving the assets away. And most of us, myself included, you know, I need all the assets that I know are going to support me. That’s how I pay my bills. That’s how I’m going to live when I retire; you know, most of us are not in a position to be giving assets away.
Yeah, this is typically for the married couple that has an estate tax problem. So they have more than $26 million. So they’re not worried about how they’re going to survive, right? And giving away a few 100,000, or a million dollars while they’re alive, that’s not a big deal to them; that would be a really big deal to me. So and to all of our clients, I imagine, most of our clients. Okay, but the other point is, you’ve given it away, and it’s irrevocable. Right, meaning can’t change.
So we use just the revocable trusts in the standard estate plan, we only use the irrevocable in a very in very specific situations. Sometimes we use them, as Madison said, for tax planning. And so, you know, we could get into all the various irrevocable trusts that help people with avoiding estate tax. But maybe that’s another episode. Yeah.
But just to be clear, that means your revocable trust doesn’t protect you from being sued. In general, if you’re worried about that, maybe there’s another problem, but an umbrella policy from your insurance company would cover that, you know, car accidents, things like that. That’s usually where those umbrella policies come into play. That’s where your trust is not going to be, and even every irrevocable trust is really going to protect you from that. Things like that. If you have rental properties or businesses, correct business formation is what protects you from that.
Yeah, that is a very good point. Because we do, from time to time, get asked that question too. Okay. So, as soon as I create this trust, I’m going to be protected from lawsuits. Right, no, not, not a revocable trust for sure. The revocable trust is completely transparent. Under the law, it’s treated as though it’s you. Because you are the trustee, you are the beneficiary, and you are the grantor, you’re everything. So it’s you doesn’t protect you from creditors. If you need creditor protection, you probably ought to talk to a bankruptcy lawyer and get some good advice about exactly what to do. Okay. Anything else?
No, I think that’s it. For most people, irrevocable trusts are not something that is being set up. It might be something that you set up for your kids that is set up after you passed away through your trust, but not genuine, something that you set up during your life for yourself. Yeah.
For most people, we do have clients who do that, but for most people, just focus on getting, please just focus on getting your revocable trust set up. Your kids will love you for not dragging them into probate court. All right. Thank you, Madison. And thank you all for joining us. We hope you got something useful out of that, and we look forward to connecting with you next time.
Resources Related to This Episode:
- A Will is Not Enough – Securing Your Legacy with Estate Planning Life can change in an instant. A will is not enough to be prepared. Get free access to our actionable E-book Guidebook #1 and start protecting your legacy today. https://absolutetrustcounsel.com/guidebooks/
- Learn how to comfortably define gray areas and assess your own unique needs to effortlessly build a secure future now. Check out Guidebook #2, Estate Planning Beyond the Basics, here > https://absolutetrustcounsel.com/guidebooks/
- Get our free introductory guide to the most used estate planning tool, family trusts, and understand how we plan to help protect your family. Guidebook #3: https://absolutetrustcounsel.com/guidebooks/
- Absolute Trust Counsel would love to offer access to our Incapacity Planning resource page: https://AbsoluteTrustCounsel.com/Incapacity-Planning/. We’ve collected our top planning information all in one place so listeners can find videos, guidebooks, blog posts, and a host of information with tips and strategies on implementing, planning, and protecting themselves and their loved ones.
- We’re pleased to provide a library of e-books to address common estate planning questions and concerns in practical, easy-to-understand language. https://AbsoluteTrustCounsel.com/Resources/.
- ASK KIRSTEN: If you’d like Kirsten to answer your question on the air, please email her at Info@AbsoluteTrustCounsel.com.
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