What’s The Difference Between Them?


With all its attendant legalese, estate planning leaves many Americans intimidated — and ultimately without an adequate estate plan.

For instance, do you know the difference between revocable and irrevocable trusts or why they might be superior to a will alone for some people?

If not, you certainly aren’t alone. But it’s not too late to learn how trusts can help protect your assets, lower your estate taxes, maintain your privacy, and carry out your wishes — without any lingo or legalese.


Revocable vs. Irrevocable Trusts

A trust is a legal entity that exists to manage a person’s assets according to their wishes. You’ve heard of at least one example of how trusts can work in estate planning: trust funds. They provide income or assets for heirs after the grantor, the person who created the trust, dies. 


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For example, if you have a daughter with a disability, you can create a special needs trust to provide for her after you shuffle off this mortal coil. Similarly, you can create a charitable trust to make ongoing donations to your favorite causes after your death.

When you transfer ownership of assets into a trust, a third party called a trustee takes over managing them. They do so based on your explicit instructions. 

You can create a trust either by hiring an attorney or through an online will-maker like Trust & Will. Either way, ensure you structure your trust to cater to your needs before signing on the dotted line.

Trusts come in two varieties: revocable trusts and irrevocable trusts. Fortunately, the names offer a pretty straightforward clue about how each works, though there are some specific quirks that might make one better for you than the other.

What Is a Revocable Trust?

A revocable trust lets you make changes to it while you’re still alive. That includes revoking the trust entirely — hence the name. 

Sometimes, people use living trusts instead of wills so their heirs don’t have to go through probate to inherit assets. That keeps any assets included in your trust private instead of assets going through probate, which become public record.

You, as the grantor, can change your living trust at any time, writing your nefarious nephew out of the proverbial will after the third time he took your car out for a joy ride with his cronies. 

You can also name yourself as both the trustee and the beneficiary of a living trust. A young single person might do so, then name a different trustee and beneficiaries later in life. 

Advantages of a Revocable Trust

There are several upsides of revocable trusts.

  1. Assets Skip Probate. After you pass, assets you put in a trust immediately go to your intended beneficiaries, skipping the lengthy, expensive probate process.
  2. Make Changes While Alive. Changed your mind about something? Revocable trusts let you tweak your instructions to the trustee or dissolve the trust entirely. 
  3. Protect Against Incapacitation. If you become incapacitated and can no longer manage your money and other affairs, a revocable trust provides clear instructions and legal authority for the trustee to step in and do so. 
  4. Easy to Set Up. Because you can always make changes later, revocable trusts are simple to set up and leave wiggle room for future updates. 

Disadvantages of a Revocable Trust

You’re probably wondering why anyone would create an irrevocable trust that locks them into an arrangement they can’t change. That’s because revocable trusts come with their own downsides, which you need to understand before creating one.

  1. No Protection From Creditors. Irrevocable trusts come with asset protection. But revocable trusts offer no protection against creditors’ judgments or liens. 
  2. Not Eligible for Tax Advantages. If you put a tax-advantaged account like an individual retirement account or 401(k) in a revocable trust, you lose the tax benefits. 

What Is a Irrevocable Trust?

As the name suggests, irrevocable trusts don’t let you revoke them once created. In fact, you can’t modify them in any way.

After you transfer your assets into an irrevocable trust, you no longer legally own or control them. But as with revocable trusts, assets remain private after you die and avoid probate court. 

Advantages of an Irrevocable Trust

It certainly makes you wonder why anyone would want to surrender their assets and their control over them. But it turns out irrevocable trusts can serve you in several unique ways.

  1. Asset Protection. In most cases, your creditors can’t go after an irrevocable trust’s assets because you no longer control those assets. Irrevocable trusts protect these assets from creditors both before and after you die.
  2. Avoid Estate Taxes. If it exceeds the estate tax exemption ($12.06 million for 2022), the federal government takes up to 40% of your estate when you die. Many states also impose their own estate taxes. But assets owned by an irrevocable trust are not a part of your estate and therefore not subject to estate taxes.
  3. Qualify for Government Benefits. Some government programs and benefits, such as long-term care from Medicaid or Supplemental Security disability benefits, come with income and asset limits. Some people put assets into an irrevocable trust to duck under those limits. It’s especially common for special needs trusts. 

Disadvantages of an Irrevocable Trust

Irrevocable trusts aren’t for everyone. Bear these disadvantages in mind. 

  1. You Can’t Change Them. Consider irrevocable trusts written in stone. If you make a mistake, you usually can’t fix it, nor can you change your mind about any of your original instructions and terms. That leaves you no flexibility for financial planning, including retirement planning, medical planning, and estate planning, even as your needs change and evolve over time. 
  2. Surrender Control. You hand control of your assets over to a trustee. In a real sense, that puts you at their mercy. 
  3. Complexity. Because of their permanent nature, irrevocable trusts require more care and legal advice to create. They’re more complicated to set up and administer on an ongoing basis. 
  4. Separate Tax Filing. Think your taxes are complex now? Your irrevocable trust must file its own separate tax return, and it may be subject to higher taxes than you are as an individual.  

The Verdict: Should You Choose a Revocable Trust or Irrevocable Trust?

The choice between the two types of trust comes down to your goals. These two trusts largely serve different purposes.

You Should Create a Revocable Trust If…

A revocable trust makes more sense in the following scenarios:

  • Planning for Incapacity. Any of us could get hit by a bus at any moment and lose our ability to manage our own affairs, at least for a time. A revocable trust lets you set aside assets with clear instructions for their management in the event you can’t manage them yourself.
  • Avoiding Probate. If you don’t want your heirs to go through the hassle — or public revelations — of probate, but you still want control over your assets while among the living, a revocable trust lets you bypass probate without surrendering control. 
  • Creating a Trust Fund. You can create a trust fund for your children or other heirs to provide for them after you’re gone without giving up control of your assets while alive.

You Should Create an Irrevocable Trust If…

Consider an irrevocable trust if the following describe your goals better:

  • Protect Against Lawsuits. If you work in a field rife with lawsuits and want to protect your assets against grubby fingers dipping into your pockets, an irrevocable trust can do the trick. Examples include doctors, real estate developers, property owners with large portfolios, or certain types of attorneys. 
  • Protect Against Tax or Divorce Seizures. Lawsuit plaintiffs aren’t the only people who may stake a claim on your assets. Wealthy individuals at risk of the IRS or an ex-spouse going after them can also potentially safeguard their assets in an irrevocable trust.
  • Avoid Estate Taxes. Irrevocable trusts might make sense if your estate exceeds the federal estate tax exemption ($12.06 million in 2022) or you live in a state with a high estate tax. 

Final Word

Everyone needs an estate plan, no matter how few assets you own. To die without one — known as dying intestate — leaves a nasty legal mess for your heirs to clean up. 

While not every estate plan needs to include a trust, both revocable and irrevocable trusts can help you plan with more precision. That includes planning for your assets after you die and beforehand in the form of asset protection or incapacitation. 

If you primarily want to plan for incapacity, avoid probate, or create a trust fund for your loved ones, consider a revocable living trust. If you want to protect your assets or prevent the IRS from putting its paws all over your estate, an irrevocable trust can help. 

You may also need to combine your trust with other estate planning tools, such as pour-over wills or power of attorney documents, to make it effective for health care and financial planning.

Just ensure you get expert help with drafting and structuring your trust document. Everyone should involve a qualified attorney in their estate planning to ensure their final wishes will stand up to scrutiny. But you can save money by using an online will-maker like Trust & Will to do the heavy lifting, then have an attorney review it. 



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