Can You Revoke a Trust?

Some people assume that one of the differences between a will and a trust is the fact that you can destroy or change a will at any time, but a trust is permanent. This is not entirely true, but it is not entirely false either. We will provide some clarity on this topic below.

Irrevocable Trusts

There are trusts that cannot be revoked (though there are limited exceptions to the rule). You surrender incidents of ownership when you establish this type of trust. Under some circumstances, this can be a good thing.

For example, we have a federal estate tax in the United States. The exclusion is $12.06 million; this is the amount you can transfer before the estate tax is levied on the remainder of your estate.

If the value of your estate exceeds this amount, you could convey assets into an irrevocable trust. After doing so, the assets would no longer be part of your estate. There would be some taxation when transfers take place, but the burden would be reduced.

Another common reason why people use irrevocable trusts is to qualify for Medicaid. Medicare does not pay for your stay at a nursing home.  Medicaid will pay for such expenses if you can gain eligibility.

Because it is a need-based program, there is a $2000 limit on countable assets. To remove assets from your name so you can qualify for Medicaid, you can transfer them to an irrevocable trust.

You would surrender access to the principal. You would, however, be able to receive distributions of the trust’s earnings until and unless you apply for Medicaid.

We can not going to go into all of the different utilizations here, but you can now see the general purpose.

Revocable Living Trust

The revocable living trust is in another category. You can revoke this type of trust, if you choose to do so, and it goes into effect while you are still living.

In addition to your right of revocation, you retain power in another way. You are the trustee of your trust so you retain control over all property you signed over to your trust.

After you establish your trust, you can change the terms at any time. You can even add additional property into the trust. Because you have all this control, the assets will count as part of your estate if you need to apply for Medicaid.

People create these trusts for other reasons, and simplified estate administration is one of them. If you use a will to state your final wishes, it would be admitted to probate, which is a costly and time-consuming legal process.

Assets that are distributed through the terms of a living trust are not subject to probate, so the administration is simplified. Plus, ownership is consolidated, which adds to the efficiency.

Another major benefit is the ability to protect beneficiaries that are not ready to handle large inheritances. You can do so by including a spendthrift provision in your trust.  Your trust becomes irrevocable when you pass away.

The successor trustee you named in your trust declaration would act as the administrator. The beneficiary would not be able to access the principal, which would also apply to their creditors.

You can prevent reckless spending if you instruct the trustee to distribute a certain amount each month, or you could dictate some other incremental distribution arrangement.

Attend a Free Educational Event!

We have provided a little bit of information here, but you can come away with a much greater understanding if you attend one of our educational events. There is no charge, and they couldn’t be any more convenient, so this is a great way to invest some of your spare time.

You can see the dates if you visit our events page, and when you identify the session that works for you, follow the simple instructions to register.

Need Help Now?

If you have learned enough to know that it is time for you to work with an Oklahoma City estate planning attorney to put a plan in place, we are here to help. You can send us a message to request a consultation appointment, or we can be reached by phone at 405-843-6100.

After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.

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