Trusts are highly customizable estate planning documents, and can be adapted to many needs, but they generally fall into one of two categories: revocable or irrevocable.
In one sense, the difference between these two types is as simple as their names: revocable trusts can be revoked and irrevocable trusts cannot. In a practical sense, however, the differences between the two types are great.
Revocable living trusts
Revocable trusts are a type of living trust. This simply means that they go into effect when the grantor — the person who first establishes the trust — is still alive.
A grantor establishes a trust by putting assets into a trust and naming a trustee to manage those assets for the benefit of the grantor’s named beneficiaries. If the trust is revocable, the grantor can change their mind about the beneficiaries, provide instructions about how the trust assets should be managed, or even dissolve the trust altogether.
However, the trust outlives the grantor, and becomes irrevocable upon their death. Often, grantors will name themselves as the beneficiaries of their trust, and name family members as their successor beneficiaries. This means that after the grantor’s death, their family members automatically become the beneficiaries of the trust.
One common use of a revocable living trust is to protect the grantor’s assets while they are alive, and then shelter them from probate after their death. Because the assets are held in trust, they are not considered part of the grantor’s estate after their death, and don’t have to go through the probate process. This leaves more to pass on to the grantor’s loved ones or preferred charities.
Irrevocable living trusts
A grantor may also set up an irrevocable trust while they are still alive. The main disadvantage of choosing an irrevocable trust instead of a revocable one is that it leaves the grantor with much less control. It is difficult, though not necessarily impossible to make changes in an irrevocable trust.
However, irrevocable trusts offer many advantages. Compared to a revocable trust, it is much harder for anyone to remove assets from an irrevocable trust, including the grantor and beneficiaries, as well as creditors and the IRS. This means irrevocable living trusts can offer stronger tax advantages and protection from creditors.
Choosing the right type for you
When you are deciding what type of trust you want for your estate plan, think carefully about your main goals and needs. If you want more control and flexibility, a revocable trust may be your best option. If you are more concerned about protecting assets, you might consider an irrevocable trust. Experienced estate planning attorneys can explain how the types of trust can help you and your family reach your long-term goals.