revocable vs irrevocable trusts

Revocable vs. Irrevocable Trusts: Which Is Right for You?

by Curtis Hearn

Estate planning often involves juggling different concerns: Most people want to ensure that their affairs are settled quickly and efficiently after they pass away, allowing estate beneficiaries to grieve and then make good use of the assets that they have inherited. Because of this concern, many people incorporate trusts in their estate plans, which can ease the transfer of assets while also ensuring that funds and property are used in accordance with the wishes of the trust creator.

But what type of trust will best preserve and pass down the generational wealth you’ve worked so hard to build? Read on to understand the basics of trusts, and how to choose the right one for you.

Trusts 101

A trust is a legal arrangement by which one person, called a “grantor” or  “trustor,” transfers assets to a beneficiary. However, the transfer is not direct: Instead, the grantor appoints a custodian of these assets, called a trustee. The trustee is obligated to manage and distribute the assets in accordance with the grantor’s wishes. 

Trusts can be in operation when the grantor is either alive or dead. In fact, many people create “living trusts,” appointing themselves as trustees. These grantor trusts often allow the trustor to make use of and manage the trust’s assets. 

Why Do People Create Trusts?

Trusts are often, but not always, part of an estate plan. There are situations, however, in which trusts are created outside an estate plan on behalf of someone who may not be able to manage their own affairs or who may be at risk of losing government benefits, such as disability benefits, if they have significant assets in their own name.

People create trusts for many reasons, including:

  • Reducing the time and cost of settling an estate. Because assets in a trust are held for a beneficiary, there is no need for probate when the grantor dies. This reduces the time it takes to get these assets to a beneficiary and can reduce legal and court costs. In addition, some trusts are structured to try to reduce or eliminate estate taxes, although this is not the case for all types of trusts.
  • Protecting an heir’s interests. Many people wish to provide for family and loved ones after they die. However, their heirs may not be able to responsibly manage the assets due to being minors, having a cognitive disability or a number of other factors. The trustee approves and provides all disbursements to the beneficiary in accordance with the terms set by the grantor.
  • Securing assets. Some types of trusts have the effect of protecting funds against legal judgments. While this is not a typical reason to create a trust, it can be one benefit of establishing an irrevocable trust for another person.
  • Tax benefits. In addition to the possible avoidance or reduction of some estate taxes, creating trusts for children and grandchildren may be a good way for individuals and families with significant assets to reduce their tax liabilities while alive.

Revocable vs. Irrevocable Trusts

There are many different types of trusts that people can use when making decisions about their funds. Trusts can also fall into one of two categories: Revocable and irrevocable. As their names suggest, one type of trust can be modified or ended by the trust grantor while the other can’t be revoked or changed by the creator unless the beneficiaries agree with the grantor’s decision.

Irrevocable Trusts

Once you establish an irrevocable trust, you won’t be able to change its terms or beneficiaries, unless its beneficiaries agree to the modifications you want to make. This means that the assets in the trust may not be available to you, even if you find yourself in a situation in which you truly need them. 

In addition, you won’t have the ability to restrict access to the trust’s funds if one or more beneficiaries give you a reason to want to do so. For example, if you learn that a grandchild who is named a beneficiary of the trust has developed a gambling addiction, you won’t be able to modify the trust to restrict the distribution of funds to the beneficiary, even if doing so would be in your grandchild’s best interest.

Because you give up a significant amount of control over the assets in an irrevocable trust, you are not subject to the same level of taxation that you would be if the assets were still in your name. In addition, these assets also have a significant level of protection against creditors and lawsuit plaintiffs

Revocable Trusts

If you opt to set up a revocable trust, you’ll be able to make changes to the trust and its terms for as long as you are alive and able to make decisions. This flexibility gives you an extra layer of financial security as you get older: If your circumstances change, you can modify or end the trust and make use of its assets. In addition, if you decide that you no longer wish to provide for its beneficiary, or you feel that the beneficiary would benefit from stricter trust conditions, you can make those changes as you see fit.

However, and depending on the type of revocable trust you choose to establish, you may still have significant tax obligations to contend with while you are still alive. The trust may also be subject to estate tax. Another consideration is creditors and lawsuits: Your funds in any revocable trusts may not be  protected against a legal judgment against you or your estate.

Making Decisions About Trusts

Trusts can be an excellent way of protecting your assets and ensuring the best financial future for your children and grandchildren. They are also complex legal and financial tools that require careful planning. A registered wealth advisor at Gratus Capital may be able to assist you in evaluating your current estate plan and deciding whether trusts should be a part of that plan.


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