What’s the Difference Between Revocable and Irrevocable Trusts?

Trusts can be a vital part of estate planning, as they’re an excellent legal means of managing and distributing assets before and after death. But before setting up a trust, it’s essential to understand the difference between revocable and irrevocable trusts and their pros and cons. Here are things to remember when planning to create and fund a trust.

Revocable Trust

A revocable trust is one that can be changed anytime by the person who created and funded the trust, known as the grantor (as long as they haven’t become mentally incapacitated). That means the grantor can add or remove assets or change beneficiaries at any point.

Pros:

1. Revocable trusts can be modified.
2. They’re easier to set up than irrevocable trusts.

Cons:

1. Assets in a revocable trust are not as protected from creditors as they are in an irrevocable trust.
2. There are few, if any, income or estate tax benefits with this type of trust.

Irrevocable Trust

As you might guess from the name, an irrevocable trust cannot be modified once it’s been created, and the assets transferred. It’s extremely rare for courts to agree to changes in these types of trusts once established. That’s why it’s critically important to be absolutely sure that the terms of the trust are correct and not something that could cause regrets later.

Pros:

1. Irrevocable trusts are not subject to estate taxes.
2. They’re protected from creditors seeking funds from the grantor.

Cons:

1. These types of trusts can very rarely be changed—they’re largely set in stone once completed.
2. They’re more difficult to set up than revocable trusts.

Let Me Advise You

If you or someone you know needs to pursue setting up a trust, call me at 610-718-6368.