When creating a trust, most people create a revocable trust. A revocable trust, which is has several key differences from an irrevocable trust. Both allow for transfer of property to heirs without the need of a probate court, which saves time, money, and protects the privacy of all parties involved. However, in some situations, a revocable or an irrevocable trust may be more useful to all parties involved.
A revocable trust can be modified at any time via a trust amendment. The grantor also has the option of completely revoking the entire trust via amendments or restatement documents. On the downside, there is no creditor protection offered by a revocable trust, so you can be sued and lose the property outlined in the trust. However, a revocable living trust is very useful in making the transfer of assets go smoothly and in keeping your private financial records out of the public view (probate records are public).
On the other hand, an irrevocable trust is a trust that cannot be changed. In many cases, revocable living trusts become irrevocable after the grantor dies. However, an irrevocable living trust can be created while the grantor lives. There are several advantages to this. One is to reduce estate taxes. One type of irrevocable trust, often called an irrevocable life insurance trust, guarantees that a person cannot be taxed on any assets listed in the trust when they die.
Irrevocable living trusts also protect a person’s assets. By giving the assets over to the trust, the grantor is giving up all control over them. This means that the grantor technically no longer owns these assets and, thus, they cannot be taken from him or her. Finally, an irrevocable trust can be created as a charitable remainder trust. This allows for the transfer of the assets from the grantor to the charity after the grantor dies. It also allows the grantor to take advantage of an income tax deduction in the year that the trust is created.