Irrevocable vs. Revocable Trusts

A trust is a legal concurrence that permits a person (the trustee) to control specific assets that have been listed in the agreement. For a trust to be legitimate, it has to have four parts. First is the grantor. This is the person who creates the trust. Usually it’s the person who currently owns the assets being transferred to the trust. Second, the trust includes assets or property. Finally, the beneficiary or beneficiaries are the people who benefit from the trust. Beneficiaries acquire payments from the trust.

When property is held in trust, the trust agreement specifies what happens to the property when the grantor dies, or even if the grantor becomes incapable. These actions happen automatically without having to go through the court system. Beneficiaries don’t have to bear the burden of court expenses tied with probate.

There are two major types of trusts – revocable and irrevocable trust. A revocable trust, also known as a revocable living trust or just living trust, is in place as long as the grantor is still living. At any time, the grantor is able to “revoke” the trust and keep making changes as long as he/he is still alive. Changes could be made to a trust through a trust amendment. In addition, an irrevocable trust is one that cannot be changed.

Most trusts routinely change to an irrevocable trust upon the grantor’s death, but a living person can also create an irrevocable trust. What makes a trust irrevocable is that changes cannot be changed. A joint revocable trust or a trust with various beneficiaries is split into multiple irrevocable trusts when the trust maker dies.

If an irrevocable trust can’t be altered, why would someone choose to have one? When it comes to revocable trusts, creditors can seize the owner’s property. Not only that, the assets will still be subject to estate taxes.

Beneficiaries do not have to worry about coming up with the money to pay estate taxes. Assets in an irrevocable trust are also kept safe from creditor lawsuits. Fortunately, beneficiaries can still access the assets if necessary. In most states, even the trustmaker can be a beneficiary.

Though, by design, an irrevocable trust cannot be changed, there are some exceptions that permit beneficiaries or the trustee to modify the trust. For example, an estate plan might include a trust protector who can look over the trust details to make changes. Also, if the assets in a trust are sold, the trust is canceled.

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