In this episode of A Matter of Trust, Attorneys Chrissy Knopke and Annie Rogers discuss the number one question they hear from clients: What’s the difference between a revocable trust and an irrevocable trust? Chrissy and Annie explain the different benefits, uses and tax treatments of revocable and irrevocable trusts.
A Matter of Trust, hosted by Creative Planning attorneys Annie Rogers and Christina Knopke, is a thoughtful, informed discussion about ideas, trends and developments in estate planning. Our mission is to educate and inspire people to make better financial choices through knowledge, tools and strategies that ensure a more prosperous future.
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Chrissy Knopke: Welcome to Creative Planning’s A Matter of Trust. I am Chrissy Knopke, and I’m here with my colleague and friend, Annie Rogers. We both are attorneys in the law firm here at Creative Planning Legal. And today we’re going to talk about the number one question that we get as attorneys, which is: What is the difference between a revocable trust and an irrevocable trust? So Annie, tell me, big picture, what is the difference?
Annie Rogers: Well, let’s start with revocable trust. This is kind of the daily planning that we do. This is a probate avoidance vehicle. This is a way to dictate how your heirs or loved ones receive your assets after you’re gone. It is still considered part of your estate for estate tax purposes. So, it’s still tied to your Social Security number. You’re the trustee over it. You manage it. You’re the beneficiary of it.
Chrissy: And then the number one question with revocable is, do I get creditor protection? And the answer is…
Annie: No more creditor protection than you already had.
Annie: It doesn’t deplete that, but it also doesn’t give you more.
Annie: You basically have to give up control over the assets in order to get that asset protection.
Chrissy: And so that’s obviously a characteristic of irrevocable. So irrevocable trusts, typically, there’s various types of irrevocable trusts, but the ones that we typically do, you cannot manage your own funds. So, you cannot be your own trustee, which is what creates that creditor protection is that somebody else is managing those assets for either your benefit or some other beneficiary’s benefit.
Annie: Right. Because they have the discretion to pay something or not pay it.
Annie: If you’re managing your own funds, then there’s really… You mean you can pay your creditor. And revocable can be amended. You can change it. You can revoke it. You can do whatever you want to with it.
Chrissy: You can change who the trustees are. You can change the distribution clause for your beneficiaries. You can keep taking money in, putting money out. You can change the property that’s in there all day long every day, and there’s no consequences for that.
Annie: On an irrevocable trust, generally if you’re still alive and have capacity, generally you can update who the trustees are. And on some trusts, like a charitable remainder trust, you can update who the charitable beneficiaries are. But generally, once you create those trusts, it’s a one and done deal. You can’t change it. And so you just want to be very careful on how you draft those provisions because they are not as easily changed as they are in a revocable trust.
Chrissy: Yep. And so typically, what we tell most of our clients is that they’re always going to start with a revocable trust to hold the majority of their assets. In any type of advanced planning, they might be doing an irrevocable trust. So people might have a revocable and a couple of irrevocable trusts. So it just depends.
Annie: Well, and there are different types of irrevocable trusts, and they serve different purposes. So it’s always worth chatting with your attorney about your estate, and what your needs are, and what you’re trying to accomplish when you’re trying to figure out one of those advanced planning-type vehicles.
Chrissy: Definitely. Thank you for joining Creative Planning’s A Matter of Trust.
Annie: Thank you.
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