The Difference between Revocable and Irrevocable Trust
A living trust can be revocable or irrevocable, says Yahoo Finance’s recent article entitled “Revocable vs. Irrevocable Trusts: Which Is Better?” And not everyone needs a trust. For some, a will may be enough. However, if you have substantial assets you plan to pass on to family members or to charity, a trust can make this much easier. Keep in mind that both revocable trusts and irrevocable trusts avoid probate for the assets that are transferred to them.
A revocable trust is a trust that can be changed or terminated at any time during the lifetime of the grantor (i.e., the person making the trust). This means you could:
- Add or remove beneficiaries at any time
- Transfer new assets into the trust or remove ones that are in it
- Change the terms of the trust concerning how assets should be managed or distributed to beneficiaries; and
- Terminate or end the trust completely.
When you die, a revocable trust automatically becomes irrevocable and no further changes can be made to its terms. An irrevocable trust is permanent. If you create an irrevocable trust during your lifetime, any assets you transfer to the trust must stay in the trust. You can’t add or remove beneficiaries. But you may be able to change certain terms of the trust, as long as they are purely “administrative” terms. In other words, changing the successor trustees. But changing the beneficiaries may not be allowed under Louisiana law.
The big advantage of choosing a revocable trust is flexibility. A revocable trust allows you to make changes, and an irrevocable trust doesn’t. Revocable trusts can also allow your heirs to avoid probate when you die. However, a revocable trust doesn’t offer the same type of protection against creditors as an irrevocable trust. If you’re sued, creditors could still try to attach trust assets to satisfy a judgment. The assets in a revocable trust are part of your taxable estate and subject to federal estate taxes when you die.
An irrevocable trust has a big advantage: it can allow you to become qualified for long-term care benefits. Plus, it can protect your assets from creditors, and in certain cases, irrevocable trusts can also help in managing estate tax obligations. The assets are owned by the trust (not you), so estate taxes can be avoided.
But again, you can’t change this type of trust and you can’t act as your own trustee. Once the trust is set up and the assets are transferred, you no longer have control over them.
Speak with an experienced estate planning or probate attorney to see if a revocable or an irrevocable trust is best or whether you even need a trust at all.
I wrote a more detailed blog post entilted “What is the Main Purpose of a Trust” which can be obtained here: https://vicknairlawfirm.com/what-is-the-main-purpose-of-a-trust/
BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.
If you liked this article, “The Difference between Revocable and Irrevocable Trust” read also these additional articles: What Is Asset Protection Planning? and Do I Need a Prenup? and Can a 529 Plan Help with Estate Planning? and Can You Prevent Family Fights over Inheritance?
Reference: Yahoo Finance (Sep. 10, 2022) “Revocable vs. Irrevocable Trusts: Which Is Better?”