Revocable vs Irrevocable Trusts in Georgia: Which One Actually Protects Your Assets?

In our conference room last month, someone said, with complete confidence, “I am fine. I have a trust.”

I asked what kind. He did not know. We pulled it out, and it was a revocable living trust, drafted well, funded properly, doing exactly what it was designed to do. He was pleased with himself right up until I explained that it offered no protection at all against the nursing home bill he had come in to ask about.

That conversation happens more than any other in this office.

The word “trust” is doing far too much work in ordinary speech. There are two broad families of trust and they solve almost opposite problems. Getting them confused is one of the most expensive misunderstandings in estate planning.

The Short Version

A revocable trust is about control and convenience. You keep everything, you can undo it any time, and it keeps your family out of probate.

An irrevocable trust is about protection. You give something up, permanently, and in exchange the asset is no longer counted as yours.

You cannot have both from the same document. The protection comes precisely from the giving up. That is the trade, and everything else follows from it.

What a Revocable Living Trust Actually Does

Plenty, and it is worth having. Just be clear about what you are buying.

It avoids probate. Assets titled in the trust pass to your beneficiaries under the terms of the trust without a probate filing. That means privacy, speed, and no court process for your family.

It handles out-of-state property. If you own a place in Florida or land in Alabama, that property would otherwise require a second probate in that state. A trust solves it.

It provides for incapacity. Your successor trustee can step in immediately if you can no longer manage your affairs, without anybody petitioning a court.

It can control timing. You can say a child receives income at thirty and principal at forty rather than everything at once.

What a Revocable Trust Does Not Do

Here is the part that gets missed.

Because you kept the right to revoke it, the law treats the assets as still yours. All of them.

* Not protected from your creditors. A lawsuit reaches trust assets the same as anything else you own.

* Not protected from Medicaid. Georgia counts revocable trust assets as available resources. A revocable trust does not shelter one dollar from a nursing home spend down.

* No income tax benefit. It is a grantor trust. The income is reported on your own return, exactly as before.

* Not protected from your beneficiary’s problems unless it is drafted to continue after your death with the right provisions.

Realize what that means practically. If you set up a revocable trust believing it protects you from long-term care costs, you have bought a probate solution and are carrying a protection risk you think you have covered.

What an Irrevocable Trust Does

You transfer assets in, and you give up the right to take them back. A separate trustee controls them under terms you set when you created it.

In exchange:

* The assets are generally outside your countable resources for Medicaid, once the look back has run

* They are generally beyond the reach of your future creditors

* They can be outside your taxable estate, which matters for larger estates

* They can be outside your children’s divorces and bankruptcies when structured to continue for their benefit

The cost is real and it is not only financial. You cannot casually change your mind. You should not put in assets you may need to live on. The trustee, not you, holds the controls.

Georgia’s Five Year Look Back

This is the timing rule that decides whether a proactive Medicaid strategy works.

When a Medicaid application is filed in Georgia, the state reviews the previous five years of transfers. Assets moved into an irrevocable trust inside that window can create a penalty period, during which the applicant is ineligible and the family pays privately for the Skilled Nursing facility (which can range from $8,000.00 to $16,000.00 a month).

Outside the five years, the same transfer generally does not count.

Which is why the honest answer to “when should I do this” is almost always “earlier than you are planning to.” An irrevocable trust created at seventy-two is a very different instrument from one created the week the hospital calls.

So Which One Do You Need?

For most Georgia families, the answer is not one or the other.

Most people need the revocable trust. Probate avoidance, incapacity planning and privacy are near-universal needs, and the flexibility matters while you are still living your life.

Some people also need an irrevocable trust. Typically those with meaningful assets to protect, a family history that makes long-term care likely, a profession that carries liability, or a beneficiary who should not inherit outright.

And plenty of people need neither yet, and need a will, a financial power of attorney and a health care power of attorney done properly first. I would rather tell you that than sell you a trust.

The Question That Sorts It Quickly

Ask yourself this: am I trying to make things easier for my family after I die, or am I trying to protect something while I am alive?

Easier after death is usually revocable. Protection while alive is usually irrevocable. Both is usually both, and that is a normal answer.

This Is Educational, Not Legal Advice

This is being presented for educational purposes only and nothing here should be treated as legal advice. What applies to you is very fact specific to your circumstances. I am licensed in Georgia and Michigan only, and this area of law changes frequently.

Your Next Step

If you have a trust and you are not certain which kind it is, bring it in. Genuinely. That is a fifteen minute conversation and it is one of the most useful ones we have.

Schedule a complimentary 15 minute Strategy Session by calling 404-549-5001.

On Thursday 17 September at 1pm we are running Unlocking the Power of Trusts: An Introduction to Trusts in Estate Planning. It covers this ground in more depth and it is free to attend.

More detail on our Estate Planning and Asset Protection Planning pages.

The three things to carry with you: a revocable trust avoids probate but protects nothing; protection requires giving something up permanently; and Georgia’s five year look back means the value of an irrevocable trust depends almost entirely on when you create it.

Having a trust and having the right trust are different things, and the difference usually only shows up when it is too late to fix.

why this disclosure in a blog? while i do give the disclosure at live events, I have never included it in my blogs. If we decide to include then it would make more sense to be towards the beginning

Document reviews are not done at a strategy session – that would require a paid consultation as the review provides legal conclusions.

   

Looking to find an experienced estate lawyer in the Georgia area who is skilled in asset protection and estate plan preparation? Shannon Pawley is an attorney in Georgia with expertise in estate planning and asset protection. Shannon can provide assistance with creating an estate plan to include making a will and how to establish a trust properly. If you have questions about asset protection or questions about making an estate plan, reach out to Shannon and she will be glad to help answer all the estate planning questions you might have!