Revocable vs Irrevocable Trust

Trusts that are created during a client’s lifetime are done so in a standalone document not inside a Will.  These trusts are revocable or irrevocable. A revocable trust has been suggested to utilize in order to avoid probate expenses.  That was the original thought behind the creation of revocable trusts in states in which probate fees were very expensive.  North Carolina is not one of those states.  Probate expenses in North Carolina are fairly inexpensive compared to other states.  For this reason, consideration should be given in preparing this type of trust and whether it is really necessary.  A client should not let an attorney or any other party recommend a revocable trust without first asking questions and understanding the entire purpose of the document. 

Irrevocable trusts are also living trusts created during the lifetime of the client.  These typically are trusts that are used for asset protection.  Placing items of real or personal property into an irrevocable trust means that the client no longer has control over the asset but instead, a trustee is named (for example a child) to make decisions regarding the trust during the client’s lifetime.  At the client’s death, the trust distributes assets just as would be done in a will and often times the language in these trusts, for purposes of distribution of assets, is quite similar to the language in a persons Will.  Irrevocable trusts have become far more popular recently to protect of assets in the event that a client in the future needs to be placed into a nursing home.  These trusts, once they are created, and assets are placed into the trust at the time of creation, will start the clock ticking on a five-year lookback for Medicaid applications for skilled nursing care.  They are the most common trusts for protecting assets in estate planning.  Usually only an elder law attorney who has knowledge about Medicaid and how the trust should be structured should be consulted regarding the preparation of this type of trust.  These are a way of pre-planning for protection of assets in addition to using a Power of Attorney to do crisis planning.