What is the difference between a revocable and an irrevocable trust?

The difference between a revocable and an irrevocable trust lies in the rights of the grantor, or the person creating the trust. A revocable trust has more flexibility and allows the grantor to modify, revoke, or terminate the trust at any time. In contrast, an irrevocable trust has less flexibility and cannot be changed, revoked, or terminated by the grantor once it has been created. The assets held in a revocable trust are considered part of the grantor’s estate for tax purposes. That means that the income earned from these assets will be taxable to the grantor, regardless of the trust’s documents. However, in an irrevocable trust, the assets are separated from the grantor’s estate. This means that the trust’s income is taxable to the trust itself. An irrevocable trust also provides protection from creditors and lawsuits, since the assets are no longer owned by the grantor. This means that the assets in the trust cannot be claimed by creditors or the court in the event of a lawsuit. A revocable trust does not offer this same level of protection. Overall, a revocable trust offers more flexibility but less asset protection than an irrevocable trust. A grantor who would like to keep some control over their assets and how they are used would be better served by creating a revocable trust. Conversely, a grantor who would like to protect their assets from creditors, lawsuits and taxation would be better served by creating an irrevocable trust.

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What is the difference between a revocable and an irrevocable trust?

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