I’m Attorney Paul Bernstein of the Bernstein Law Group. And today, I’ll talk about revocable versus irrevocable trusts. So what’s the difference between a revocable and an irrevocable trust? Simply put, a revocable trust is one where the trust maker or the grantor can change the words.
An irrevocable trust means that the trust maker can’t change the words of that trust. That doesn’t mean that they can’t make changes to the trust. It depends on what words are in the irrevocable trust.
A revocable trust
So let’s begin with the revocable trust. Often we utilize those where we have a client that’s looking to avoid probate upon their incapacity or their death and then make a distribution to the intended beneficiaries of their estate. Yet they want this trust to be one that they can make changes to over time as their relationships with different people change and as their goals and concerns change.
So in that case, we use a revocable trust. This is really a document that we fund with assets for the purpose, as I mentioned earlier, to avoid probate. But in this case, because it’s revocable, like the name says, it can be revoked. It can be changed. So that’s a revocable trust.
It should be noted that a revocable trust really does not typically allow for any asset or lawsuit protection because of the nature of that trust. And it typically won’t do much in the way of tax planning. It’s usually income tax neutral.
An irrevocable trust
An irrevocable trust, the other category if you will, is one where the grantor can’t change the words of the trust. So why are these trusts utilized? Sometimes, they’re used for asset protection purposes, i.e., for liability or lawsuit protection. Sometimes they’re used for tax planning, both income and estate tax planning purposes.
More reasons for having an irrevocable trust
Another reason for an irrevocable trust might be to give a gift during ones lifetime, but make sure it’s protected for those intended beneficiaries from divorces and lawsuits. So we want to make sure that it’s a thoughtful and protected gift.
There might be other reasons for the irrevocable trust too. It could be for nursing home and Medicaid purposes. There are lots of different reasons for an irrevocable trust. The purpose of the trust will determine how much flexibility is built into that trust.
So the grantor might have the ability to make changes to the irrevocable trust, or if not the grantor, then maybe a different party can make changes to that trust. But at the end of the day, once the words are in the irrevocable trust, they are what they are.
The real difference
So that’s the real difference. It boils down to this: Revocable means the trust maker can change the words of the trust. Irrevocable means the trust maker cannot change the words within the trust.
I hope you found this informative. If you have any other questions or you’re just not sure what to do, feel free to reach out to us.