What is the Difference Between a Revocable Trust and an Irrevocable Trust?

What is a Trust?

In estate planning, a trust is a written legal document where a relationship is established between the trust maker and another individual (trustee) for the ownership, control, and distribution of property for the benefit of others (and sometimes the creator).  This legal document allows the person to manage property during life while ensuring a smooth transition of affairs after either he or she has died.

Revocable Trust

A revocable trust is commonly known as a living trust.  It contains written expressions and is used to create a trust that may hold assets like property, business assets, or investments for the benefit of a person and his or her family.  What makes a trust revocable is that the person who creates the trust (often called the “grantor”) can dissolve it or modify it at any time during an individual’s lifetime.  A revocable trust is designed to avoid the probate process.

Irrevocable Trust

An irrevocable trust cannot be revoked or changed, so this type of trust is usually created to produce certain tax or asset protection benefits.  Because this type of trust is irrevocable,  any assets transferred into it are no longer considered to be the settlor’s property.  The importance of this transfer, is that the assets are often considered protected from the grantor’s legal adversaries and creditors, and can be exempt from federal and state estate taxes.

Trusts come in many different alternatives, but distinctive features exist making some revocable and others irrevocable.  Both are documents that can take effect during an individual’s lifetime. When deciding which type of trust is appropriate for you, first consider how much control you want over your trust.  Also, take into account the need you have for the use of your assets.

With over 29 years of experience in creating estate planning documents, the Law Offices of Edward P. Graham, Ltd., can guide you through the estate planning process for the optimal management of your hard-earned assets while looking for the best outcome to maximize your legal and tax benefits.