When establishing your estate plan, it is important to note the different types of trust that you may utilize during this process. The two types of trusts that you may create are irrevocable and revocable trusts.

The biggest difference between an irrevocable and revocable trust is your ability to make changes to the trust once it has been created. The grantor is the individual that puts the trust together. As the grantor, you can change a revocable trust. An irrevocable trust cannot be easily changed. Irrevocable trusts are generally set up to minimize any estate taxes that may be applicable to your estate.

Most people create a revocable trust to maintain control of the assets they include in it. They also want to be able to update the terms of their trust based on changes that occur during their lifetime. A revocable trust allows Grantors to stay in control of their assets and alter the language of their trust as they see fit.

Set below are the differences between an irrevocable and revocable trust.

Irrevocable Trust

  • Cannot be changed. Once an irrevocable trust is created, it cannot be changed or canceled unless the beneficiaries sign off on the modifications to the terms of the trust. Even if the beneficiaries sign off on the changes, a court may also need to approve them.
  • Assets held in an irrevocable trust generally become exempt from the Grantor’s taxable estate, which decreases the Grantor’s tax liability.
  • An irrevocable trust is not subject to estate taxes. When you put assets into an irrevocable trust and remove them from your ownership to the trust, you are able to protect these assets from estate taxes.
  • Irrevocable trusts are permanent. The terms of this type of trust last for the grantor’s lifetime and even after you pass away.
  • Irrevocable trusts are excluded from probate, a court-ordered process that ensures the court is not involved in distributing assets after the Grantor has passed away.
  • Irrevocable trusts are kept private and out of the public record. This is beneficial to the beneficiaries because it keeps the information in the trust private.

Revocable Trust

  • Revocable trusts allow for changes and edits to the trust as long as the Grantors are alive and mentally capable. The Grantors may change the Trustees to the trust. The Trustees are the individuals who manage the assets in the trust. The Grantors may also change the beneficiaries or the individuals who receive the assets in the trust. The Grantors may also change the instructions on how the assets are distributed in the trust. This type of trust gives the Grantors much more control over the assets and how those assets are distributed through the trust.
  • A revocable trust may be subject to estate taxes because the assets are still under the Grantor’s ownership.
  • Revocable trusts last as long as the Grantor wants them to last and can be canceled or “revoked” any time that the Grantor is alive and mentally capable. At the time of death, revocable trusts become irrevocable, meaning that no one can change the terms of the trust once the Grantors have passed away.
  • Revocable trusts are kept private and out of the public record. As with irrevocable trusts, this is beneficial to the beneficiaries by keeping the information on how assets are distributed privately.

If you do not have a trust in place, contact a licensed attorney in your state to assist with this process. You want to be sure that you have discussed your situation and your assets with an experienced attorney to determine the best type of trust created for your estate planning purposes.

If you live in the District of Columbia, Maryland or Virginia, please contact the Hill Law Group at (301) 244-9040 to assist with your trust plan. We would be happy to service your needs in this regard.