Revocable Vs. Irrevocable Trusts

What is the difference between revocable and irrevocable trusts? Check out this week’s post where we’ll go over some key differences!  

Let’s go over what a trust is before we dive in. Trusts can be a key component in your estate plan depending on your goals. A trust is a legal fiduciary that allows a third party to hold your assets on behalf of a beneficiary. The third party is called the “trustee.” The person appointed as trustee is responsible for holding and distributing the assets pursuant to your instructions. 

Revocable Trust:

This type of trust is created during your lifetime and is sometimes referred to as a “living trust.” The terms of a revocable trust can be changed or even revoked during your life. These changes may include removing beneficiaries or trustees as well as designating new ones, in addition to instructions on how assets in the trust are managed or distributed. Assets that go into your revocable trust are not shielded from creditors during your lifetime, so a revocable trust is typically not used for asset protection purposes. If you were to ever be sued, the court can order that the assets in your trust be liquidated to satisfy any creditor judgments against you. These types of trusts are generally set up to avoid probate. Probate can be a costly and long process – click HERE to learn more about how probate works. If your goal is to avoid probate by using a revocable trust, remember to ensure your trust is fully funded. To learn more about why this step is so important, click HERE. 

Irrevocable Trust: 

Once your irrevocable trust is established, you cannot change its terms or revoke it—the trust is set in stone. Changes can only be made to the trust under extremely rare and narrow circumstances. Once your assets are placed in the trust, you no longer own them. Since you no longer have ownership over any assets placed in the irrevocable trust, these assets are not available to creditors. So, if you were to be sued, the assets held in your irrevocable trust could not be ordered to be liquidated to satisfy any creditor judgments against you. In certain circumstances, an irrevocable trust may be preferred for the asset protection it provides.