What is the difference between a Revocable and Irrevocable Trust?

Basically, there are two types of trusts: the revocable living trust, which is changeable, and the irrevocable trust which you cannot change.

There are actually benefits to both.

The most common one that people use is the revocable living trust because it is changeable. You put things in, take things out as many times as you want. The word living means that it's dynamic. It can be changed and it can be adapted over time. You can add things, you can take things out. You can change the beneficiaries. You can add them, subtract them, whatever you want to do, because it's revocable and living.

But upon your passing it becomes irrevocable. It's set in stone now, and can no longer be changed or cancelled at any time.

The Creator, or the Grantor, of the trust is the one who places assets into the trust.

The Trustee is the one who does what the instructions say (this can be investing money from the trust, using property to help the beneficiaries or using the funds to pay expenses of managing the trust.

Sometimes, the Creator/Grantor can act as the trustee. That's a bit confusing, but it means that you're the one basically in charge of the assets and the money. You still control it because you're alive. And then if you generate income off those assets, you report it on your personal taxes. The benefit of this is that you are in charge and you still control these things.

Once you die, it becomes irrevocable.

The revocable trust is ideal if you wish to control the assets, if you wish to control the beneficiary choices and if you want to keep the option of whether you can just scrap it all. The revocable living trust will accomplish this, all the while circumventing the courts.

The irrevocable trust cannot be changed unless the beneficiaries all agree and give permission for it to change. Once it is established, the one who creates it, the Grantor or Creator relinquishes ownership and control of the assets that are in the trust, and they are transferred out of their personal estate.

You are wondering why anyone would want to create something they can't change?

1. Creating an irrevocable trust minimizes Estate Tax burdens upon death. The trust funds can be used to give investment income to the family members without tax while the funds remain untouched.

2. Also, Disabled Beneficiaries using Government benefits like Medicaid and Supplemental Security income cannot receive too much income, or they risk losing the benefits. So creating an Irrevocable Trust can protect income and assets from being named as "too much" income.

3. People who often find themselves entangled in lawsuits (surgeons, lawyers, accountants, architects and developers of real estate, OBGYNs, anesthesiologists) want to protect their assets from creditors and lawsuits, so they create an Asset Protection Trust.

4. And affluent couples who have really large and complex estates find this to be very attractive solution and really like it. The tax implications are really important.

If you were wanting to establish an irrevocable trust on your own, I encourage you to consider speaking with an attorney. This is when I would strongly consider getting professional help. If you need help finding a lawyer, I know several incredible individuals that truly care about their clients.