My clients often inquire as to the difference between a revocable trust and an irrevocable trust. It is an important question, because the wrong kind of trust can be as destructive as the right kind of trust can be constructive.
If you set up a revocable living trust, that trust is, as its name suggests, entirely revocable and changeable during your lifetime. Beneficiaries can be changed, assets can be moved in and out of the trust, trustees can be substituted, and the entire trust can be terminated.
Such a trust does not even require a separate tax identification number—it is reported on the tax return of the grantor (the person who set up the revocable trust). However, because that trust is revocable, it is usually not immune to creditor attachment.
An irrevocable trust is just that—irrevocable. Once it is established, it is difficult to change. Those assets no longer belong to the person who established the trust—they now belong to the trust, and the trust also requires a separate tax identification number. So people have to be careful not to move assets into an irrevocable trust that might be later needed during retirement or illness (although, to be sure, the beneficiaries of the trust can often use its assets to assist if needed!).
Nevertheless, irrevocable trusts are helpful to individuals with a great deal of assets, because property transferred to them are usually not included in the estate of the grantor. Further, an irrevocable trust, if drafted correctly, is immune to creditor attachment. For that reason, if a person has sufficient assets, transferring some of those assets to an irrevocable trust can be an important part of an estate plan to protect a family’s legacy.
You should also be aware that a revocable living trust does become irrevocable upon the death of the person who set up the trust. At that time, the revocable living trust, under its own terms and without any court involvement, becomes irrevocable with all the benefits of that status.