Revocable and irrevocable trusts are two distinct legal arrangements used in estate planning, each with individualized characteristics and purposes. Revocable trusts offer flexibility and control during your loved one's lifetime, while irrevocable trusts provide certainty, asset protection, and potential tax benefits but require your loved one to relinquish control and ownership of the trust assets permanently.
Revocable trust
A revocable trust, also known as a living trust or inter vivos trust, is a legal arrangement in which your loved one (settlor) transfers ownership of assets into a trust during their lifetime, with themselves typically serving as the initial trustee and beneficiary. Your loved one retains the ability to amend, modify, or revoke the trust at any time while they are alive and competent.
Flexibility. Your loved one can make changes to the trust, including adding or removing assets, changing beneficiaries, or amending the terms of the trust document, as their circumstances or preferences change.
Incapacity planning. A revocable trust provides for the management of trust assets in the event of your loved one's incapacity, ensuring continuity of asset management without the need for court intervention.
Privacy. Revocable trusts generally avoid probate, allowing for the private transfer of assets to beneficiaries without court oversight or public scrutiny.
Purpose. Revocable trusts are commonly used to avoid probate, provide for incapacity planning, maintain privacy, and streamline asset management and distribution after your loved one's death.
Irrevocable trust
An irrevocable trust is a legal arrangement in which your loved one transfers ownership of assets into a trust, relinquishing control and ownership of the assets permanently. Once established, an irrevocable trust generally cannot be amended, modified, or revoked by your loved one, except under limited circumstances and requires the consent of the beneficiaries or a court order.
Permanence. The terms of an irrevocable trust are typically fixed and cannot be changed by your loved one, providing certainty and permanence in asset management and distribution.
Asset protection. Assets transferred to an irrevocable trust are generally shielded from creditors, lawsuits, and other potential threats, as they are no longer considered part of your loved one's personal estate.
Tax planning. Irrevocable trusts can offer tax advantages, such as reducing estate taxes, minimizing income taxes, or preserving eligibility for means-tested government benefits.
Purpose. Irrevocable trusts are commonly used for asset protection, estate tax planning, Medicaid planning, charitable giving, and preserving wealth for future generations.
To reiterate, the main difference between revocable and irrevocable trusts lies in your loved one's ability to make changes to the trust and the permanence of the trust's terms.
No content in this app, regardless of date, should ever be used as a substitute for any direct legal advice you receive from your lawyer or other qualified legal professionals.
