When planning your estate in Ohio, one of the most common decisions involves choosing between a revocable trust and an irrevocable trust. Both can help your assets pass to beneficiaries without going through probate, but they work differently and serve different goals. Understanding the key differences between these two trust types is the first step toward deciding which one fits your estate planning goals.
What is a revocable trust?
A revocable trust is a key estate planning tool that lets you remain in control of your assets during your lifetime as a trustee. Furthermore, you can update the trust document to reflect life changes such as marriage, divorce or new beneficiaries. If you become incapacitated or pass away, your named successor trustee takes over management and, ultimately, distributes your assets according to the trust’s terms.
What is an irrevocable trust?
Once you create an irrevocable trust, it is generally unmodifiable. You transfer assets into the trust, which then holds legal ownership. A trustee of your choice manages those assets on behalf of your beneficiaries. In comprehensive estate planning, an irrevocable trust is often used when:
- You want to reduce federal estate tax exposure on a large estate
- You want to plan for Medicaid eligibility and long-term care costs
- You want to protect assets from future creditor claims
While an irrevocable trust can protect assets from future creditor claims, exceptions apply for pre-existing claims, child support and spousal support. Additionally, for Medicaid benefits, you are required to transfer the assets at least 5 years before applying to satisfy the federally mandated five-year look-back period that Ohio applies.
How an attorney can help you decide
Both trusts give you the option to skip probate court. At the same time, they offer unique advantages not found in the other, which can be helpful based on your specific goals and circumstances. With the help of an estate planning attorney, you may be able to make an informed decision about your legacy.