As the names suggest, a revocable trust can be modified, amended and/or revoked by the grantor at any time whereas an irrevocable trust cannot be revoked by the grantor, ever. The real difference between the two different types of trust though is the level of management and control that the grantor (the individual creating the trust) can exert over the trust and its assets.
Revocable Trusts
In most circumstances revocable trusts are used as a vehicle to assist in the management of assets during the grantor’s lifetime, and as a will substitute to distribute assets after the grantor’s death (when combined with a pour over will). In a typical situation the grantor may transfer certain assets into the trust, and may retain ownership of other assets outright until such time as ownership is transferred to the trust which may be any time before incapacity or death. While the assets in the trust are owned by the trust itself and not by the grantor, the grantor can be named as the trustee of the trust and can manage such assets just as if the grantor owned such assets outright. The grantor may distribute assets to herself, may change the trust terms, and may even revoke the trust and take the assets out of the trust.
One of the benefits of having the assets in a revocable trust is that a successor or co-trustee can be named along with the grantor who will be available to manage trust assets if the grantor becomes incapacitated. A revocable trust DOES NOT remove the assets from the grantor’s estate, and DOES NOT provide the grantor with any type of creditor protection for the assets owned by the trust.
Irrevocable Trusts
Once the grantor establishes the irrevocable trust and funds the trust by transferring assets (cash or property) into the trust, the trust assets no longer belong to the grantor and the grantor cannot amend or revoke the trust to take those assets back. Typically, a transfer to an irrevocable trust is made because the grantor wants to permantly transfer the ownership of the assets and does not want to retain any benefit from the trust. In the majority of situations the irrevocable trust is used to ensure that the assets transferred to the trust are not included in the grantor’s estate. The grantor cannot be a beneficiary of the trust. Depending on the type of irrevocable trust established, the assets in an irrevocable trust may not be subject to claims by the grantors’ creditors because the grantor relinquished control of the assets. Similarly, if all proper requirements are met the trust assets may not be considered as part of the grantor’s estate. If a grantor is willing and able to give up control of particular assets, an irrevocable trust can be a great asset preservation and tax-saving tool.
Getting Legal Help
Deciding between a revocable and an irrevocable trust is a complicated legal issue which should be based on individual circumstances. Experienced Estate Planning Attorney Elga Goodman can help you make the best decisions for you and your family. Call us today at 561.935.9763 and toll free 855.873.7268.
Posted in: Estate Planning, New York Estate Planning