A trust can be an effective estate planning tool in Indiana. There are many types of trusts, but most fall into two broad categories: revocable and irrevocable. Which trust is right for your situation? The answer depends, in large part, on your goals. Our Indianapolis estate planning lawyers can help you determine whether you need a revocable trust or an irrevocable trust in Indiana.
Revocable Trusts Provide Control and Allow for Flexibility in Probate Planning
Many people in Indiana opt for revocable trusts. They offer a number of different advantages as an estate planning tool. Notably, a revocable trust is often used when the primary goals are control, continuity, and probate avoidance. The person who creates the trust (the settlor) can generally amend, restate, revoke, or add property to the trust during life, as long as the trust document reserves those powers and the settlor has legal capacity. In other words, you keep control over property and assets that you place within a revocable trust. That structure makes a revocable trust useful for clients who want to keep practical control over their property.
Revocable Trusts Do Not Usually Provide Asset Protection
There is one big disadvantage with revocable trusts: They are not asset protection tools. A common misunderstanding is that a revocable trust automatically protects assets from creditors, lawsuits, or long-term care costs. In most cases, it does not. The reason is that the settlor (creator of the trust) keeps the power to revoke the trust and reclaim the property, assets in a revocable trust are usually still treated as available to the settlor during life. That means a revocable trust can simplify administration, but it usually will not shield property from the settlor’s own creditors.
That said, revocable living trusts can provide meaningful estate planning benefits. They may avoid probate, allow smoother successor trustee management after incapacity, preserve privacy compared with a probate estate, and reduce delays after death. They can also hold Indiana real estate, out-of-state property, bank accounts, investment accounts, and business interests if properly transferred.
Irrevocable Trusts Require a Transfer of Control (Less Flexibility)
An irrevocable trust works differently. The settlor usually gives up direct control over the transferred assets. Depending on the design, the settlor may no longer have the right to revoke the trust, pull assets back, or change the core beneficial interests. Indiana law distinguishes the capacity required to create or amend a revocable trust from the capacity required to create or fund an irrevocable trust.
To be clear, the loss of control is the point in many irrevocable trust plans. An irrevocable trust may support long-term care planning, creditor-risk planning, tax planning, special needs planning, blended family planning, or controlled inheritance planning for children and grandchildren.
Irrevocable Trusts Can Support Medicaid and Long-Term Care Planning
Irrevocable trusts are strong asset protection tools. That is the primary advantage that they have over revocable trusts. For many Indiana families, the most important distinction between revocable and irrevocable trusts involves long-term care planning. Nursing home care can consume substantial savings. A properly drafted and funded irrevocable trust may help preserve assets if planning starts early enough and the trust complies with Medicaid eligibility rules. Timing matters, especially for long-term care planning:
- Transfers to certain irrevocable trusts may lead to Medicaid transfer penalties if made during the look-back period. In Indiana, Medicaid uses a five-year lookback period for transfers. Assets should be transferred to an irrevocable trust at least five years before long-term care is needed to be fully protected from Medicaid (Indiana Code § 12-15-2-23).
The trust terms matter just as much as timing. If the settlor retains too much access to the principal, the assets may still be treated as available. If the wrong person serves as trustee, distributions are poorly drafted, or the trust gives the settlor excessive control, the planning can fail. An irrevocable trust can be powerful, but it is not casual planning. An irrevocable trust should always be set up by an experienced Indiana estate planning attorney.
The Right Trust Depends on Your Goal
There is no one-size-fits-all approach for trust planning. As with other types of estate planning matters, the right solution is the one that best matches your overall planning objective. A revocable trust may be right for you if you want to avoid probate, make incapacity management easier, maintain privacy and flexibility, and retain control. Indeed, it is often a strong fit for a homeowner, parent, business owner, or retiree who wants a cleaner transition after incapacity or death without giving up access to assets during life.
On the other hand, an irrevocable trust may be better if you want asset protection, Medicaid planning, tax planning, or more restrictive control over future distributions. It may also help in second marriages, family business succession, or planning for beneficiaries who should not receive property outright. The tradeoff is significant. Still, if asset protection is an important reason why you are setting up a trust in the first place, you generally need to opt for an irrevocable trust.
Tip: You can have more than one trust. There are some people and families who can best benefit by putting some assets in a revocable trust and other assets in an irrevocable trust.
Why Trust White & Jocham for Help With a Trust
Trusts can be complicated. Whether you are considering setting up a revocable trust or an irrevocable trust, professional guidance and support are available. The best solution for your situation depends on your goals, your financial situation, and other factors. At White & Jocham, we are leaders in trust planning in Indiana. Your initial consultation with our Indianapolis trust planning attorney is completely confidential and carries no additional obligations.
Get Help From Our Indianapolis Trust Planning Lawyer Today
At White & Jocham, our Indianapolis estate planning attorney has extensive experience with trusts. If you have any questions about revocable trusts and/or irrevocable trusts, we can help. Contact us today to set up a strictly confidential, no-obligation case review. Our firm handles estate planning in Indianapolis, Greenfield, and throughout Indiana.