A Beginner’s Guide To Revocable vs Irrevocable Trust

Posted by smith clea on February 19th, 2020

Legal trusts can either be revocable or irrevocable. Both go into effect during the lifetime of a trust maker, also known as the grantor or settlor. The most significant difference between a revocable vs irrevocable trust is who manages the trust's assets and whether or not the trust's terms can be changed.

All of the assets the grantor wishes to protect get transferred into the name of the trust. The trustee of the trust then manages the trust and all of its assets. The trust is governed by the terms under which it was created and the trustee has a fiduciary responsibility to the trust and its beneficiaries.

Revocable Living Trusts

Revocable living trusts are one of the most popular types of trusts because of their flexibility. The grantor transfers their assets into the trust and usually manages it as trustee during their lifetime. One of the major benefits of a revocable trust is that the grantor can change or amend the living trust at any time during their lifetime.

Irrevocable Trusts

Unlike a revocable trust, an irrevocable trust can’t be changed after it’s created. When you fund an irrevocable living trust and transfer your property into it. Generally, you appoint someone else as the trustee to manage the trust and its assets. Unlike a revocable trust, you can’t move assets in and out of it and you can’t modify it. Irrevocable trusts  are used in special cases as they have some benefits and unique tax implications. Often times irrevocable trusts are used when creating a trust for a special needs family member or for individuals seeking creditor or tax shields.  

Read more : Revocable vs irrevocable living trust Explained by a professional

Why Set-Up a Revocable Living Trust?

Avoid Probate

A revocable living trust helps avoid probate. When the grantor of the trust dies, a successor trustee steps in to manage the trust and distribute the remaining assets to the trust beneficiaries. The benefit of a living trust vs a last will and testament is that the distribution of assets happens privately with a living trust. On the other hand, with a last will and testament, the will must go through public probate court proceedings before beneficiaries can receive your assets.

Flexibility

As stated previous, a revocable living trust is very flexible as the grantor can change or amend the trust at any point during their lifetime. They can also move assets in and out of the trust or sell any of the assets in the trust as they see fit. A lot of people opt for this flexibility and choose to create a revocable trust instead of an irrevocable trust.

Planning For Incapacity or Disability

This type of trust also plans for incapacity or disability of the grantor. If the can’t make medical or financial decisions on their own, the successor trustee or another appointed party can step in to manage the trust or make medical and financial decisions on behalf of the grantor.

Why Set-Up An Irrevocable Trust?

Some of the reasons people choose to set up this kind of trust is that they have a special needs family member, or they are looking to set up a tax or credit shelter. There are a variety of irrevocable trusts: special needs trust, life insurance trust, ab trust, asset protection trust, and charitable remainder trust.

When comparing revocable vs irrevocable trust, it’s best to consult with a trust attorney. Trust attorneys are trained in will, trust, and estate law and focus their practices on creating customized estate plans to help their clients achieve their unique goals.

Consult Rochester law center for creating your living trust