Trusts fall into one of two broad categories: revocable and irrevocable. Any revocable trust you establish can be changed or rescinded during your lifetime. You remain in full control of the decisions and trust assets. An irrevocable trust, such as a life-insurance trust, cannot be altered once you put it in place. There are many reasons why you might want to revoke a trust. Life situations change often. You may set up an A/B trust to benefit your spouse after your death. But what if you divorce? You would clearly want to revoke that trust. Some trusts, such as life-insurance trusts and charitable trusts have been deemed irrevocable by federal and local governments. Why? They provide substantial tax breaks for their beneficiaries. Further, many individuals are concerned about nursing home and long term health care issues. Irrevocable trusts are commonly used by attorneys to protect assets in the context of Medicaid planning.

The best way to understand how a living trust would work for you is to review the stages in the cycle of a typical Revocable Living Trust. Formation - After a complete review of your tax, estate, financial, and personal goals, you and your lawyer should formulate a comprehensive plan. Where a Revocable Living Trust is an appropriate component, you should always use a lawyer to draft the trust. The trust should be signed, witnessed and notarized, and copies should be given to your professionals, accountant, financial planner, and insurance adviser. These people will be helpful, if not critical, in assisting you to properly transfer assets to your trust. Your accountant should include a copy of your trust in the permanent file of your important documents. Also, your accountant will likely be involved in helping your family in the event of your death or disability, and then will need a copy of your trust. Management - You will continue to manage the assets in your trust as if they were your own, with one exception. Transactions affecting trust assets will be completed in the name of the trust. You will sign trust checks and buy stock in your trust's name. YOU will sign; you remain in full control of the assets. Your Incapacitation - When you become disabled, your successor trustees will take over the management of your trust assets. If you instead named an initial co-trustee, then that co-trustee may serve alone, or the next successor co-trustee appointed in the trust document will then serve with the co-trustee. At this time, your agent, acting under your durable power of attorney, may transfer to the trust any assets you own that were not already transferred to the trust. Your living trust should contain detailed provisions stating how and who should take over, including how it should be determined that you are disabled so that your successor trustees can take over. Further, it should make it clear how to determine when you are no longer deemed disabled so that you can take back control over your financial management. After Your Death - Once you die, the trust will no longer be revocable, and the trust provisions will be implemented by your successor trustees. These provisions could include the outright distribution of property to intended beneficiaries (such as adult children), or the establishment (or continuation) of one or several trusts. Several kinds of trusts can be incorporated into your living trust. At this point, any assets that were not already transferred to your trust, either by you when you formed it, at a later date by you or by someone making a gift to you, or by your agent under your durable power of attorney after your disability, can be transferred under what is known as a pour-over will. The key provision of this will provides that any assets you may have owned at your death, which were not already in your trust, should be transferred (or poured over into) your trust. Remember, you remain in total control of your assets while they are in the Revocable Trust. It is for this reason that your assets inside of the trust are not protected in the event you need a nursing home, or similar long term care. The main reason for the revocable trust is to avoid probate and provide an efficient means of settling your estate without Court intervention. You may also creatively provide for your beneficiaries, while assuring that in-laws are excluded from your estate. Please see the section above on Irrevocable trusts for more information on protecting assets from nursing homes.