There are various reasons for using a revocable or an irrevocable trust. Some people 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 expenses 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 life of the recipient (i.e., death, divorce, bankruptcy, lawsuits). The assets in the irrevocable trust are not owned by the children; therefore, are not subject to their life events.
It is important to know that assets owned by a revocable trust are not protected from long-term care expenses.
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Revocable Trust |
Irrevocable Trust Established To Protect Assets From Long-Term Care Costs |
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Grantor has power to revoke the trust. |
Yes |
No |
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Grantor has the right to income. |
Yes |
Yes or No Income can be paid to the grantor or can accumulate and not be paid. Grantor decides this at the time the trust is established. |
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Grantor has the right to change the beneficiary. |
Yes |
Yes, if the grantor retains this right when the trust is established. |
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Grantor can also be the trustee. |
Yes |
Yes |
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Grantor has access to principal. |
Yes |
No, but the grantor can give someone else access to principal. |
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Assets in the trust are protected from long-term care costs. |
No |
Yes |
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Assets avoid probate in PA. |
Yes |
Yes |
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Assets avoid PA inheritance taxes. Assets avoid federal estate taxes. |
No |
No, if the grantor retains certain rights, like the right to income or the power to change the beneficiary. |
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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. |
