Irrevocable Vs. Revocable Trust
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In the broadest terms, there are two types of trusts – a revocable trust and an irrevocable trust. While it may seem obvious, a revocable trust can be changed, or defunded altogether, at any time while an irrevocable trust cannot. With that limited information, most people would choose the flexibility of a revocable trust without hesitation. Unfortunately, the benefits typically associated with a trust – asset protection and favorable tax treatment, are not available for revocable trusts. Further, the benefits of revocable trusts – such as flexibility in modifying the trust and retaining ownership of the assets, are indistinguishable from other estate planning tools which provide additional benefits.

Here is a breakdown of all the ways an irrevocable trust is different than a revocable trust: 

1. Ownership of Trust Assets.
Whenever property, money, or some other asset is moved into a trust fund the “owner” of the property depends on whether the Grantor, the legal term for the person transfers his or her assets into the trust, chooses to create a revocable or irrevocable trust. In a revocable trust, the Grantor will remain the owner of the assets. In an irrevocable trust, the assets are now “owned” by the trust. The transfer of legal ownership from the Grantor to the trust fund is the “cornerstone” of all the benefits that come with an irrevocable trust, as well as all of its disadvantages. 

2. Modifying the Trust. 
A revocable trust can be modified, or completely ended, at will. With limited exceptions, an irrevocable trust cannot be modified after the Grantor has created the trust. This is because the assets in a revocable trust are still legally owned by the Grantor. In contrast, an irrevocable trust’s assets are owned by the trust itself, therefore the Grantor no longer has the right to the assets that are held in the trust. 

3. Tax Purposes 
For tax purposes, an irrevocable trust has clear benefits. First, because the Grantor no longer owns the assets then he does not have to include the personal assets on his tax returns and he does not have to pay income on the assets. In contrast, because the Grantor would still own the assets in a revocable trust then he will be required to list and pay all income taxes. 

Perhaps more importantly, though, an irrevocable estate is not subject to estate taxes. Again, because the Grantor does not own the assets after putting them into his trust then they are not included in his estate and will not have to go through any probate proceedings. In contrast, there can be grave tax implications for large revocable trust funds which will be subject to estate taxes and probate proceedings. 

4. Protection of Assets 
Last, and usually the most important distinction, is the ability for an irrevocable trust to protect its assets. Unlike a revocable trust, the assets in an irrevocable trust cannot be touched by creditors. This means that common financial disasters like divorce or bankruptcy cannot blunt a person’s entire estate. Since the assets are owned by the trust, they cannot be touched by someone seeking money or collection from the Grantor. Predictably, a revocable trust is still subject to all legal claims against the Grantor because they are all legally still his assets. 

Further, the asset protection given to irrevocable trusts will last after the Grantor has died. Unlike revocable trusts which are included in a person’s estate, an irrevocable trust will continue operating under the same rules and with the same Trustee. This has two implications. First, an irrevocable trust will not be subject to attack during probate – which can be an exhausting and expensive affair, with possibly disastrous results. Second, an irrevocable trust can continue providing for the Grantor’s loved ones during the probate process. The average probate proceeding takes six months and is typically much longer for large estates. The long wait can leave the deceased’s loved ones in a financial crisis until the estate is resolved, especially if the death were unexpected and sufficient planning was not already undertaken to care for the loved ones. 

About the Author 
Tripp was born in Charleston, South Carolina. He graduated from The Citadel with a B.A. in Political Science and holds a M.A. from Hawaii Pacific University in Diplomacy and Military Studies. Tripp earned his Juris Doctorate from the University of Memphis Cecil C. Humphreys School of Law. He is a former Army officer and served in Germany and Macedonia. He is a former research analyst for both the U.S. Army Central Identification Laboratory-Hawaii and the Defense POW/Missing Personnel Office. Tripp is the author of the book Forgotten Raiders of‘42. In December 2013, Tripp was appointed by Governor Nikki R. Haley to serve on the Charleston County School Board and was later elected for another term. Over the past decade Tripp has assisted hundreds of individuals in protecting their families and preserving their legacies through customized estate plans and irrevocable and revocable trusts. Tripp enjoys spending time with his wife and their three children.

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