male hand signing contract or subscription form with a pen on a rustic wooden desk. Revocable trustDefining Trusts – Revocable or Living Trusts and Irrevocable Trusts

What’s the difference between a revocable trust and a living trust? We hear clients ask this question rather often. In truth, both revocable and living trusts are one in the same. They are both a trust whose terms may be changed or adapted as needed.

If you are looking for a trust that requires the consent of the beneficiaries in order to be modified post-creation, an irrevocable trust is in order. Many wealthy individuals will choose a trust rather than a will when estate planning so that they may provide more for loved ones and to better control what happens to their wealth once they die. This can also allow them a means for reducing potential tax burdens and preventing a lengthy probate process.

Keep in mind that a creating a trust offers a means of putting a separate legal entity into place in order to help manage one’s assets. It is created while an individual is still living in order to give them the ability to determine how those assets are used or distributed. A third party known as a trustee then manages the trust. This trustee will be required to handle the trust according to the way it was set up when it was created and will do so once the individual owning the trust dies. The trustee will, within these guidelines, decide how assets may be distributed and how they are invested.

REVOCABLE / LIVING TRUST

As mentioned previously, a revocable, or living, trust is one whose terms can be changed at any given time. Modifications may include adding, removing, or changing stipulations on how assets are managed, as well as adding or removing beneficiaries. This offers a high degree of flexibility while irrevocable trusts are much more rigid. There are however some disadvantages as well. Because of the control offered by a living trust, creditors may have access to the assets listed as part of the trust. This means that the assets may be liquidated in the event of a court judgement. It also means that upon death of the trust owner, all assets held in trust become subject to any and all applicable federal and state estate taxes.

IRREVOCABLE TRUST

An irrevocable trust is the polar opposite of the revocable or living trust. The moment the agreement is signed, it becomes a concrete agreement. There are some very rare circumstances under which an irrevocable trust may be changed, but for the most part changes are not an option. This is because the assets have been transferred to the control of the trust removing ownership and most all the control of the assets from the benefactor.
While it can be extremely rigid, an irrevocable trust does offer benefits in regard to taxes. Since assets are not owned by the benefactor, estate taxes do not apply upon death. A benefactor may also be free from any tax burden that would come from income tied to the assets. Keep in mind that this sort of trust may be quite complex to set up. Having a qualified and experienced attorney to assist is a must.
  • Revocable trusts are easily modified and may be accessed as needed for making those changes.
  • Irrevocable trusts are very rigid and hard to modify, but offer tax shelters not offered by revocable trusts.

Not sure which trust is right for you? Give us a call today to set up an appointment. We would be more than happy to meet with you and discuss your trust options.