May 16, 2021

Revocable Trust vs. Irrevocable Trust

Attorney and Financial Advisor Chris Berry discuss the difference between a Revocable and an Irrevocable Trust in this episode of Daily Wisdom.

Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via this link or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

Castle Wealth Group helps families with their legal, financial, and tax planning for their retirement and legacy.

With the use of legal structures like revocable living trusts, Castle Trusts (asset protection trusts), Chris Berry and Castle Wealth Group can help your family plan, protect, and preserve what is important through their Retirement and Legacy Blueprint Process.

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Episode Transcript

Do We Need a Revocable or Irrevocable Trust

Hey, this is Chris Berry. And today, we’re going to talk about the difference between revocable versus irrevocable trust. And if you like this information, please make sure to subscribe to our YouTube channel.

Christopher Berry is a leading estate attorney and advisor in the area of retirement and legacy planning. He had been featured in publications such as Forbes, Kiplinger’s, Crain’s Detroit and more. He’s the host of the weekly radio show and podcast, The Chris Berry Show. He’s a national thought leader as it relates to retirement and legacy planning. And has authored the Amazon best selling book, The Caregiver’s Legal Guide.

So, a big question is do we need a revocable or irrevocable trust. And understand, there’s lots of different types of revocable and irrevocable trust. For example, on the revocable trust side, we could have a revocable trust set up for estate tax purposes. We could have a revocable trust that builds in legacy inheritance provisions for the beneficiaries. We could have revocable trust, say, outright distributions to beneficiaries. We could have a revocable trust that have pet trust provisions built in there. We could have a revocable trust that has supplemental needs or special needs trust, language built into the trust. So understand, there’s lots of different types of trust, but typically they’re broken into irrevocable versus revocable. And then, on the irrevocable side, we could have irrevocable life insurance trust that are used for protect against estate taxes for any life insurance. We could have charitable remainder trust. We could have third-party special needs trust. We could even have castle trust. Castle trust is an asset protection trust that protects against nursing home Medicaid spend down and builds an asset protection.

And then, even though it’s a irrevocable trust, you can still make changes to it and stuff. So understand that just because we say the word irrevocable doesn’t mean that you can’t make changes to something. Irrevocable is a very specific legal term or piece of legal jargon. And a lot of people hear the word irrevocable and their brain make certain conclusions, jumps to certain conclusions. So keep in mind, there’s lots of different types of revocable versus irrevocable trust out there. And in our office, typically we’re doing, say, majority of the time, we’re doing one of three types of trust and I’ll go over that today.

So first, we might be doing what’s called a basic revocable trust. The purpose of this is to avoid probate and control the distribution upon death. So, a lot of times we will fund assets into the trust, you’ll be the trustee. God forbid, that you get hit by a bus or you pass away. Everything flows into the trust. You have a successor trustee that then distributes the assets wherever they’re supposed to go. It goes outright to them. Done deal, we avoid probate, everything goes where they’re supposed to go. Well, that’s a good trust. It avoids probate, controls the distribution. It’s powerful. It’s important.

Legacy Trust

But then, we have a step-up from that. We have what we call a revocable trust, but we call it a legacy trust. It’s still a revocable trust, but this trust avoids probate. But now, what it does in addition to controlling the distribution is it protects those beneficiaries. So whatever they inherit from you, if anything, would now be protected for their lifetime, from a divorce, from a creditor action, from a bankruptcy. And so, if you’re to pass away, that trust could be split into, say, three separate shares. One share for each child if you have three kids. Each child inherits their share independently.

They can manage it. They can decide how it’s invested. And they could receive the income. And as long as they keep it inside of that trust, think of it inside of that piggy bank, as long as they keep it inside of that piggy bank, whatever they keep inside of that piggy bank they inherited from you would be protected for their lifetime, from divorces, creditors, bankruptcies. And then, they could pull the money out of there if they want to. But if they leave it there, it’s protected. And then, if they pass away, instead of that money going to a spouse or in-law who might remarry, it goes down to your potential grandchildren or it goes to the other siblings.

So, what we’re doing is we’re giving the children or beneficiaries the opportunity. So whatever they inherit from you, if anything, are protected from divorces, creditors, bankruptcies. And if they pass away, the money stays in the bloodline, stays in the family, versus going to the in-laws. That’s very different than the basic revocable trust. Not to put down the basic revocable trust. It’s good at what it does. It avoids probate, controls the distribution. The legacy trust, which is a revocable trust, avoids probate, controls the distribution, but now builds in the opportunity for asset protection for the kids.

And then, the third main type of trust, and keep in mind these aren’t the only types of trust that we do, but these are the typical trust that we do. The third type of trust is a type of irrevocable trust called a castle trust. Now, with the castle trust. It avoids probate, controls the distribution, and protects the kids. But now, builds an asset protection for you. So it protects you from the creditors, from bankruptcies, and most importantly, it protects you from the devastating cost of long-term care. Whatever we have inside of the trust is protected from that dreaded nursing home or Medicaid spend down, once we make it five years from the time we set up that trust, okay? Because Medicaid is a five-year look-back period.

Medicaid

So if we make it five years, then a 100% of what we have in the trust is protected from that nursing home or Medicaid spend down. So now, we can have Medicaid pay that base level of care, and we have a pot of resources, that piggy bank, that’s available for us. And we can unscrew it, take assets out at any time to help improve, pay for additional care, to improve our quality of life, or for a married couple, to ensure that healthy spouse doesn’t completely impoverished just because of one spouse needed long-term care.

Now the castle trust, we use the term irrevocable. Again, don’t jump to conclusions on what that means. The castle trust, you can still make changes to it. You can disinherit beneficiaries if you want to. You’re the trustee, you’re in control. You can get access to the funds and you pay taxes the way you normally do. So the castle trust, even though it is a irrevocable trust, it seems more like revocable trust. But what the castle trust does that the revocable trust does not, is that it builds in that asset protection. So the basic revocable trust avoids probate, outright distributions to the beneficiaries. The legacy trust, which is a form of revocable trust, avoids probate, protects the kids. And then, the castle trust avoids probate, protects the kids, and most importantly, protects you. Protects you from the devastating cost of long-term care. Protects you from those creditors and lawsuits.

So hopefully, that’s helpful for helping you understand the difference between a revocable trust and the different types, versus a irrevocable trust and the different types. This has been Chris Berry with Castle Wealth Group. Thank you so much.

Castle Wealth Group has clients across the nation. And helps families plan, protect, and preserve what is important by creating a Retirement & Legacy Blueprint.