Question:
What is the difference between a revocable and an irrevocable trust?
Response:
Sometimes legal language is straightforward, even if usually it’s not. A revocable trust may be revoked or changed (amended). An irrevocable trust may not be revoked or changed. Any trust involves placing property, whether real estate, bank accounts or investments, in the hands of a trustee who must manage the property under the terms of the trust instrument for the benefit of one or more individuals (the beneficiaries). In the case of a revocable trust, the person who creates the trust (the grantor or donor) can change the trust or even change his mind and simply take the property back into his own name. In the case of an irrevocable trust, the grantor doesn’t have this power. Once the trust is created and property is transferred to it, it’s under the the control of the trustee.
Going back to revocable trusts, they’re often created for estate and financial management purposes. Often the same person is the grantor, trustee and beneficiary while she’s alive and legally competent. The trust permits a successor trustee to step in if the grantor becomes incapacitated and it sets out what happens to the trust property after the grantor passes away. To make things a bit confusing, once the grantor passes away, the revocable trust becomes irrevocable because the grantor was the only one with the power to revoke or amend it.
And to make things even a bit more confusing, irrevocable trusts aren’t quite as irrevocable as they used to be. Under the Uniform Trust Code if all the beneficiaries agree, irrevocable trusts may be modified. In addition, many states now permit “decanting” when due to a change in the law or other circumstances the original trust can no longer serve its purpose. This involves transferring trust assets to a new trust that better accomplishes the goals of the original trust. You can read more about both techniques here.
