There are two (2) types of trusts: revocable and irrevocable. A revocable trust can be modified, revoked or changed during your lifetime, as opposed to an irrevocable trust, which is much less flexible. A revocable trust allows you to maintain full control over your assets; however, it cannot be used to protect your assets from potential creditor claims or medical costs, or reduce the value of your estate for estate tax purposes. If any of these is your goal, you may want an irrevocable trust.
However, there are a few reasons a revocable trust should be considered as part of your overall estate plan:
If you are planning for disability: If disability is a major concern, then placing your assets in a revocable trust allows the trust assets to be managed by a designated trustee during your incapacity. Otherwise, a court-appointed fiduciary could be appointed to control your assets if you did not properly plan for a disability.
If you want to avoid probate after your death: A Will guarantees your estate will go through probate. Probate is the legal process which transfers your assets to your heirs upon your death. Probate can be expensive and causes a delay in the distribution of assets to your heirs. Probate also invites creditors and heirs to make a claim against your estate since probate is public record. A revocable trust avoids probate upon your death by transferring the trust assets to the designated trust beneficiaries without court interference, delay in distribution of assets and public scrutiny.
In short, while irrevocable trusts are generally preferred for protection as well as estate tax planning, a revocable trust remains an essential tool of estate planning.