Revocable Living Trust
This type of trust is created by you during your lifetime. You transfer assets, which can include personal property, real property, cash or other financial assets, to the Trustee to manage. You can serve as the Trustee of the trust as long as you have legal capacity. If you become incapacitated, a successor Trustee, specified in the trust document, would take over the management of the trust assets. Upon your death, the Trustee will make distribution of the assets or continue the trust in accordance with the terms of the trust.
The advantage of this type of trust is that it provides for the management of your assets and payment of your debts and other expenses during your lifetime. At your death, the assets can pass to your beneficiaries without the need to go through Probate. This type of trust, however, could have an adverse impact on your eligibility for MaineCare or other public benefits because the assets in the trust are countable to the Grantor as if you owned them outright.
Although you can dissolve or amend a revocable trust any time you choose as long as you’re still mentally competent, these trusts don’t protect against lawsuit liability or estate taxes the way irrevocable trusts do. By its very nature, you can reclaim the property you place into it at any time. The law, therefore, considers that you still personally own this property, so its value can be counted for purposes of qualifying for certain government benefits as well.
A revocable trust automatically becomes irrevocable at your death because you’re no longer available to make changes to it or revoke it.
Irrevocable Living Trust
An irrevocable trust is one that, by definition and design, can’t be amended, modified, changed or revoked. In other words, the written terms of the trust agreement are set in stone after the trust has been created, except under some isolated and rare circumstances.
An irrevocable trust can protect your assets if you work in a profession that puts you at risk for certain lawsuits - or even if you don’t. You can’t take the property back after you transfer ownership into an irrevocable trust, so it’s safe from creditors and anyone who holds a judgment against you if you want to ensure that it’s preserved for your beneficiaries. You no longer own it - the trust does, and a creditor or judgment holder can’t take property from anyone or anything that’s not a party to the lawsuit.
Assets you own count against you for purposes of qualifying for certain government benefits, such as MaineCare and Supplemental Security Income. Even if your estate is nowhere near large enough that estate taxes might become an issue, transferring assets out of your ownership can avoid depletion of your property to pay for nursing home care in your later years. An irrevocable trust can also protect assets for a special needs person when it’s designed in such a way as to avoid disqualifying that person for crucial government benefits.
Irrevocable Life Insurance Trusts (ILITs)
An irrevocable life insurance trust is a trust that is set up as the owner and beneficiary of a life insurance policy. A client can make a cash gift to an ILIT to purchase a life insurance policy. When the client dies, the policy proceeds payable to the ILIT are excluded from the value of the estate for estate tax purposes.
These trusts reduce estate taxes by removing the proceeds of life insurance from a taxable estate. Instead, the trust owns the insurance policy. The beneficiary of the policy can be anyone, but the trustee must be someone other than the previous owner of the policy. The grantor cannot have any control over the policy once the trust is made, and the trust must exist for at least three years before the Grantor’s death.
A trust created during the life of the Grantor, but that takes effect at the Grantor’s death, is a testamentary trust.
It is usually created in a Will - for example, a trust made to name a trustee for property left to a minor, or to hold real property for family use for multiple generation