Explore the Differences Between Revocable and Irrevocable Trusts

Trusts are categorized mainly into two types: revocable and irrevocable. Each type has its unique characteristics and implications.

REVOCABLE TRUSTS: FLEXIBILITY AND CONTROL

A revocable trust, often known as a living trust, is designed to offer maximum flexibility. This type of trust allows you to maintain control over your assets and make changes to your estate plan throughout your life. You can alter the terms of a revocable trust or dissolve it entirely if your circumstances or intentions change. While this flexibility is a significant advantage, it’s important to note that revocable trusts are subject to income and estate taxes and creditor claims. Upon the death of the trust creator, these trusts typically transition to being irrevocable.

IRREVOCABLE TRUSTS: FIXED TERMS AND POTENTIAL TAX BENEFITS

Once established, the terms of an irrevocable trust cannot be modified, and you relinquish control over the assets placed in it. This loss of control is a tradeoff for potential tax advantages, as well as for seeking to minimize potential creditor claims that may arise in the future. (It is important to note that irrevocable trusts cannot be used to avoid present creditor claims.) Assets in an irrevocable trust are often excluded from a person’s taxable estate, potentially leading to significant tax savings.