The most common type of trust for estate planning is revocable trusts, often called living trusts. The primary benefit of using a revocable trust is to avoid probate after your death and simplify the process of distributing your estate for your beneficiaries.
Another advantage of a revocable trust is that it allows for flexibility. The assets owned by a Revocable Trust remain easily accessible. Also, as the name states, it can be revoked. It can also be amended to change Trustees or beneficiaries. It can even be restated entirely. Flexibility to modify or adapt an estate plan moving forward is generally a good thing. However, that same flexibility makes a revocable trust a poor tool for asset protection.
Asset protection comes up in conversations with our clients about Medicaid and general creditors. For Medicaid, asset protection can be useful to help our clients qualify for benefits and also to avoid Estate Recovery once they’ve died after receiving Medicaid benefits. Otherwise, some clients are interested in making certain assets unavailable to their creditors or for any kind of general liability they might incur moving forward. This is a complicated topic, but generally, to successfully protect your assets they must be unavailable to you. Since revocable trusts are flexible and the assets are generally available to the client, they don’t work for asset protection.
For some clients, we create irrevocable trusts. These trusts both avoid probate after your death and also protect your assets for Medicaid purposes. To accomplish both goals, these trusts cannot be flexible and accessible like revocable trusts. Therefore, they are not the right estate planning tool for everyone.