Understanding Different Types of Trusts
Hi, I’m Oklahoma attorney Meg Prestidge, and I want to answer a question that I get asked often: what is the difference between a revocable living trust, a testamentary trust, and an irrevocable trust? A revocable living trust is created during your lifetime, and it is exactly like it says—it’s revocable during your lifetime. All of the terms of that trust become irrevocable at your death.
You are the only one that is allowed to revoke the trust or make changes to the terms of the trust. On the other hand, a testamentary trust is a trust that is created through probate by the terms of your last will and testament. We see testamentary trusts when certain assets are to be distributed, for example, when a trust A is created for the spouse, and trust B and others are created for children with their own set of identified assets.
The Role of Irrevocable Trusts
So, testamentary trusts are creatures of probate. In contrast, an irrevocable trust is generally an estate planning tool where you want to identify certain assets that belong in the trust that will go to your identified beneficiaries. Upon your death, those assets distribute as per the terms of the trust.
The issue with an irrevocable trust is that you cannot be the one in control of the trust. You must give up control of those assets, which is crucial to understand. It’s important to ensure that these are not assets you need or intend to continue managing, as doing so may cause the IRS not to deem it an irrevocable trust.
Avoiding Future Issues with Trusts
Generally, you create an irrevocable trust to get the clock ticking for certain benefits. For instance, it can help you avoid issues if you need to use Social Security or Medicare for your end-of-life care, especially if you hit the five-year mark. This strategic planning can provide a safety net for your loved ones and ensure your assets are distributed according to your wishes.
Schedule a Low-Cost Consultation Today
I’m Oklahoma City Attorney Meg Prestage. If you’d like to discuss this and other estate planning issues in more detail, I invite you to contact me at 405-888-5400 or visit theoklahomacityattorney.com for a low-cost consultation.
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