Revocable trusts and irrevocable trusts are two types of trusts that serve different purposes. One of the most notable differences is that when a revocable trust is created the creator of the trust (“the grantor”) may revoke or amend the trust where an irrevocable trust is not as easily amended. Both types of trusts are not subject to probate court and can help protect your assets and leave them to specific beneficiaries. They each include a grantor, beneficiaries who will receive your assets, and a trustee who ultimately controls and distributes the assets. It is important to understand the difference between a revocable and irrevocable trust in order to create a strong estate plan that meets with you specific needs and goals.
Revocable Trusts
A revocable trust, sometimes known as a living trust, is a legal agreement in which the creator of the trust (the “grantor”) transfers ownership of their assets into the trust, but retains control over the assets during their lifetime. The trust can be altered or revoked by the grantor at any time during their lifetime, which is why it is called a revocable trust.
One of the main advantages of a revocable trust is flexibility. Since the grantor can make changes to the trust at any time, they can adapt to changes in their life circumstances. Additionally, a revocable trust can help avoid probate, which is the court-supervised, lengthy, and expensive process of distributing a person's assets after they die. In addition to probate avoidance, a revocable trust can also provide for the management of assets if the grantor becomes incapacitated and unable to manage their affairs.
Irrevocable Trusts
An irrevocable trust cannot be altered or revoked once it has been created, hence the name. This type of trust is used to protect assets from creditors, reduce estate taxes, and provide for long-term care. One common irrevocable trust is known as an ILIT. ILIT stands for Irrevocable Life Insurance Trust. It is a type of trust that is used to own a life insurance policy. The purpose of an ILIT is to remove the life insurance proceeds from the taxable estate of the insured so that they are not subject to estate taxes upon the insured's death. Irrevocable trusts offer greater asset protection and potential estate tax benefits. Since the assets are transferred out of the grantor's ownership, they are typically protected from creditors and are not always subject to estate taxes.
When deciding between a revocable trust and an irrevocable trust (or both!), it is important to consider your goals and the specific needs of your estate & tax plan. Our qualified estate planning attorneys are here to help you evaluate your options and determine which type of trust is right for you.
If you need help with creating your estate plan, contact us today to schedule a consultation and start planning for your future.