A revocable living trust allows you to retain control over the assets you've placed in the trust, but there are certain circumstances where an irrevocable living trust is the better option.
updated November 21, 2023 · 4min read
Living trusts are popular tools in the estate planning process. There are two kinds of living trusts—revocable and irrevocable. To decide which type of living trust will work best for your particular circumstances, it's important to understand the differences between them.
A living trust is a trust that you create during your lifetime. The purpose of a living trust is to hold your assets while you're alive and distribute them according to your wishes at your death.
Contrast this with the testamentary trust, which isn't created until your death. While you do include all the details about the trust in your will, the testamentary trust isn't established when you execute your will. It's only after your death that the trust itself is created.
Certain terms are common to all trusts that you should become familiar with. The creator of a trust is called the grantor or the settlor. The people to whom the assets of the trust will be distributed on your death are known as the beneficiaries.
And finally, the person in charge of administering the trust and distributing the assets is called the trustee. If you've also designated another trustee who will step in if anything happens to the first trustee, this second trustee is known as the successor trustee.
As its name indicates, the revocable living trust is one that you can revoke, or cancel, at any time. However, the term "revocable" includes more than just the ability to terminate the trust. The revocable living trust lets you retain control over your assets even though it's the trust that owns them.
As the grantor of a revocable living trust, you can:
Additionally, many people designate themselves the trustee when they're setting up a revocable living trust. Other advantages of a revocable living trust include the following:
The irrevocable living trust also functions as its name indicates. It's irrevocable, so once you've set up an irrevocable living trust, you give up the ability to do anything with it. Not only can you not terminate or cancel it, but you also can't make any changes to the trust.
Given its lack of flexibility, the irrevocable living trust isn't as popular within the estate planning process. Its irrevocability is its main disadvantage: once you transfer assets to the trust, you no longer control those assets.
There are, however, certain circumstances where an irrevocable trust might make sense, including the following situations:
For most estate planning purposes, the flexibility of the revocable living trust will be a good option since it lets you retain control over the assets you've placed in the trust.
Depending on your specific circumstances or purposes, however, the irrevocable living trust might be the better alternative. But regardless of whether you opt for a revocable or irrevocable living trust, it's always a good idea to consult with an experienced estate planning attorney to help you set up your living trust of choice.
by Belle Wong, J.D.
Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She ...
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