When someone sets up a trust, they are transferring property to another person to hold that property for the benefit of another person.
When it comes to planning your estate, creation of a trust can have tremendous advantages over traditional wills and other methods of devising your property. Trusts can be used to avoid the probate process, which is often costly and fraught with delays. Additionally, use of a trust can give you much more discretion in how your property will be used upon your death. Trusts can also be used to shield your assets from creditors or lawsuits.
Revocable trusts are trusts whose terms can be modified or terminated at any time by the creator (the "settlor"). Because of the revocable nature of the property that you're placing in the trust, these trusts lack some of the tax benefits frequently associated with trusts. However, revocable trusts allow a certain amount of flexibility in reclaiming assets should you ever find yourself in a position where you need them. If these assets were placed in an irrevocable trust, it becomes a lot more difficult to reclaim them if you ever need them.
Joint Revocable Trusts
Joint revocable trusts are instruments that allow married couples to pool all of their collective assets in a trust, listing themselves as trustees and beneficiaries. This has the primary benefit of having the trust property avoid probate entirely when one of the spouses dies. Additionally, this structure allows you to appoint other trustees to care for one of the spouses after the other has passed if that spouse is unable to manage the property him or herself.
Irrevocable trusts are ones where, after the settlor transfers property title to the trust, he or she is unable to change or terminate the terms of that trust. While this loss of flexibility carries some risk, it also has a number of significant advantages over revocable trusts.
Assets placed in an irrevocable trust may be safe from creditors trying to collect from you. Additionally, irrevocable trusts can help you meet the requirements of qualifying for medicaid or other benefits while still having access to some funds for non-medical needs. If you have a relative with special needs, there are types of irrevocable trusts that allow them to qualify for government benefits while still having some flexibility in their own spending.
Irrevocable Life Insurance Trusts (ILIT)
When someone with a life insurance policy passes away, if the policy is in that person's name, the value of the benefit of the policy is added to his or her estate and is subject to the estate tax. An ILIT names the trust as the beneficiary of the policy, and helps you avoid loss of your estate to the estate tax after you pass.