The Diff erence Between Trusts

There are two types of trusts: revocable and irrevocable.

A revocable trust is like a treasure chest where you store all of your assets during your lifetime, but you do not close the lid or lock it. You can continue to put assets in or take them out. A revocable trust allows you to maintain absolute control of the assets in the trust during your lifetime. You can also revoke or dissolve your revocable trust at any time. Most people create a revocable living trust to avoid probate. They may want to keep their assets private

and avoid the public probate process.

An irrevocable trust serves diff erent purposes: it can be used either to mitigate the tax burden of high-net-worth individuals or to prevent assets from being counted for Medicaid qualifi cation purposes. Either way, an irrevocable trust, once formed, remains irrevocable.

Consequently, once you transfer assets into this type of trust, the lid of the treasure chest is closed and locked.

Irrevocable trusts are eff ective because you essentially give up ownership of the assets in the trust. As the trustmaker, you appoint an independent trustee (someone other than you) who controls the trust and the assets it holds. There are several types of irrevocable trusts, each of which functions because the original owner no longer has a legal right of possession or access to the assets. Though giving up ownership and control of assets can be diffi cult, the signifi cant benefi ts of a properly drafted and funded irrevocable trust make this document a powerful tool.

Each type of trust serves diff erent purposes, and each can be a useful estate planning tool

when it is created to meet your specifi c needs. But you must fully fund your trust for it to work.

Merely signing a trust document is not enough to protect your assets. You must transfer your assets into the trust by retitling deeded property or updating benefi ciary designations on fi nancial policies to name the trust as the benefi ciary. Without a fully funded trust, you simply have a useless stack of paper that has no eff ect on your estate plan.

Each type of trust serves diff erent purposes, and each can be a useful estate planning tool when it is created to meet your specifi c needs. But you must fully fund your trust for it to work.

Editor’s Note: This article was submitted by Attorney Ashley Sharek of Sharek Law Offi ce, LLC. Ashley can be reached at 412-347-1731 or visit her website at www. shareklaw.com. See our ad on page 4-5.