What is the difference between a Revocable Trust and an Irrevocable Trust?
Chance isn’t even close to being right. A revocable trust can be terminated at will by the settlor (the settlor is the person who set up the trust). An irrevocable trust cannot. I don’t know if you only wanted the basic explanations or not, so I’ll give you a little more: The benefit of a revocable trust, of course, is that you can terminate the trust whenever you want and get all of your money back, or in most cases you can only partially revoke them and just make the corpus of the trust smaller. Irrevocable trusts, on the other hand, often get favorable tax and other treatment. If the trust is irrevocable, the money in it cannot be reached by the settlor except in disbursements as expressly laid out in the terms of the trust. Because of this, the settlor is not considered the owner. He therefore does not have to pay taxes on the property until it is paid out of the trust, and if he is sued or otherwise ends up owing someone a large amount of money, that person cannot make him pay his
A revocable trust allows the Settler, to maintain control of the assets held in trust by the ability to charge, amend or revoke trust terms during his/her lifetime. On the other hand, an irrevocable trust may not be changed, amended or revoked, and the settler loses control of the asset places in the trust. Both types of trust have their advantages and disadvantages, but either can accomplish the settler’s specific goal.
A Revocable Trust can be amended and changed by the Grantor while the Grantor is alive and has mental capacity. An Irrevocable Trust cannot be amended or changed by the Grantor. Since the Grantor of a Revocable Trust keeps substantial control over the trust, transfer of assets to the revocable trust are not subject to gift tax, but the assets are included in the Grantor’s estate for determining federal estate taxes. Assets in a Revocable Trust are subject to claims of creditors. An Irrevocable Trust is often prepared so that the Grantor does not retain powers over the trust which would subject the assets to federal estate taxes, but as such lifetime transfers would be counted, and possibly taxed, under the gift tax regulations. If the Irrevocable Trust is prepared so that the Grantor does not retain control, the assets are generally not subject to the claims of the Grantor’s creditors.
