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There are various reasons for using a revocable or an irrevocable trust. Some use a revocable trust for asset management during their lifetime. Others use a revocable trust to pass assets to their beneficiaries upon death with some measure of control over those assets. 

Irrevocable trusts can be used to protect assets from long-term care expenses. One way to protect assets from long-term care costs is to not own the assets. As opposed to using a trust, assets could be transferred outright to an individual’s child, for example; however, those assets would be subject to the child’s life. For instance, assets transferred outright to a child would be subject to the child’s death, divorce, disability, and creditors. The assets in the irrevocable trust are not owned by the beneficiaries; therefore, are not subject to the beneficiaries’ life events. 

It is important to know that assets owned by a revocable trust are not protected from long-term care expenses. Following are some characteristics of revocable and irrevocable trusts:

 

 

Revocable Trust

Irrevocable Trust

Established To Protect Assets From Long-Term Care Costs

Grantor has power to revoke the trust.

Yes

No

Grantor has the right to income.

Yes

Yes or No

Income can be paid to the grantor or can accumulate in the trust. Grantor decides this at the time the trust is established.

Grantor has the right to change the beneficiary.

Yes

Yes,

if the grantor retains this right when the trust is established.

Grantor can also be the trustee.

Yes

Yes

Grantor has access to principal.

Yes

No,

but the grantor can give someone else access to principal.

 

 

Revocable Trust

Irrevocable Trust

Established To Protect Assets From Long-Term Care Costs

Assets in the trust are protected from long-term care costs.

No

Yes

Assets avoid probate in PA.

Yes

Yes

Assets avoid PA inheritance tax and federal estate tax.

No

No,

if the grantor retains certain rights, such as the right to income or the power to change the beneficiary.

Income is taxable to the grantor.

Yes

Yes,

if the grantor retains certain rights, such as the right to income or the power to change the beneficiary.

 

 

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