What's the Difference Between an Irrevocable and a Revocable Trust?

When you're deciding what type of trust you need, it's important to
understand what's available to you. Trusts fall into a few basic
categories, and two of these categories are Irrevocable and
Revocable.Irrevocable TrustsAn irrevocable trust is a trust that can't
be changed or taken back once the trust agreement has been signed.
There are also revocable trusts that are designed to become
irrevocable once the person making the trust has passed
away.Irrevocable trusts are used to accomplish estate planning goals
that require the owner of property to relinquish all ownership and
control of the property before getting certain benefits. For
example:Estate Tax Planning: Irrevocable trusts are often used for
estate tax reduction. When you transfer property into an irrevocable
trust, you relinquish all ownership and control over the property
(even though you may still be able to benefit from the property).
Because the property is no longer yours and you can't control it, it's
not included in your taxable estate, so you won't have to pay estate
taxes on the property.Asset Protection: The same logic applies in the
area of asset protection. When a judgment creditor acquires the right
to attach your property in order to collect payment on a judgment,
they can only reach "your" property. Property that's in an irrevocable
trust is not yours, and it's not under your control, so it's beyond
the reach of judgment creditors.Revocable TrustsA revocable trust is a
trust over which you retain control as long as you're alive and have
mental capacity to control your own affairs. So, you can change the
terms of the trust, or even cancel the trust altogether if you want
to. They're extremely flexible, but because you retain control over
the trust assets, a revocable trust can't be used for tax planning or
asset protection. Instead, revocable living trusts are great
for:Probate Avoidance: When you transfer property to a revocable
living trust, it's no longer yours. Only property that belongs to you
is subject to probate, so a properly funded revocable trust can help
you avoid probate.Incapacity Planning: You can use your revocable
trust to appoint a Disability Trustee. This person will take over the
management of your trust assets if you become mentally incapacitated
to the point that you're unable to manage your own affairs. This helps
your family avoid the time, expense, and lack of privacy involved in
going to court to have a conservator appointed for you.Within the
categories of "revocable" and "irrevocable" trusts, there are
countless options for accomplishing your estate planning goals. A
qualified estate planning attorney can help you determine which option
is best for you.