“There is a lot of confusion out there about the difference between a revocable and an irrevocable trust.”
Trusts are part of many estate plans and with good reason. Trusts are an excellent way to minimize or avoid having an estate go through probate, according to a recent article, “Is your trust revocable? Should it be?” from Coeur d’Alene/Post Falls Press.
Let’s start with the basics. A trust is a contract between the creator of the trust, known as the “grantor,” “trustor,” or “settlor,” and the person who will carry out the instructions within the trust document, known as the “trustee.” Those instructions include what to do or not to do with the assets in the trust if the grantor becomes incapacitated and what to do with the assets when the grantor is deceased.
Once you’ve decided to set up a trust, you’ll become the trust's grantor and, in most cases, will serve as your own trustee. The trust must include language naming secondary and, in some cases, tertiary trustees who will serve if you are incapacitated or upon your death. The trustee who steps up to serve once you cannot serve as your own trustee is known as the “successor trustee” although the term “successor” isn’t always used.
In a revocable trust, the grantor almost always has the right to change the trust document if they are living and not incapacitated. They can change who will get what from the trust upon their death, who will serve as the secondary trustee and what powers the secondary trustee will have. This flexibility is very useful as life circumstances and relationships change over time. As the name implies, the revocable trust can also be revoked altogether.
An irrevocable trust is very different. Once an irrevocable trust is established, the trust cannot be revoked, and no changes can be made. There are exceptions. However, none of them make it easy to make changes to the trust. The grantor usually must go to court to get permission to make changes.
Why would someone choose an irrevocable trust over a revocable trust? There are instances where an irrevocable trust makes more sense. Some examples include trusts designed to protect assets that would otherwise make someone ineligible for certain programs, like Medicaid. An estate planning attorney would create an irrevocable trust to establish a Special Needs or Supplemental Needs Trust for beneficiaries with disabilities.
It is also possible to have trusts created for married couples with children from prior relationships to protect the children from being disinherited.
Revocable trusts usually become irrevocable once the trust's grantor dies. This makes sense, since the grantor doesn’t want anyone to change the trust once they have passed.
There’s much to consider when setting up a trust, which is not a one-size-fits-all strategy. Talk with your estate planning attorney to discuss your unique situation and learn what type of trust would best protect yourself, your estate and your family.
Reference: Coeur d’Alene/Post Falls Press (Dec. 3, 2023) “Is your trust revocable? Should it be?”