The Differences Between a Revocable Trust and an Irrevocable Trust
Estate planning can often involve establishing a trust for your assets. By setting up a trust, your beneficiaries can bypass Virginia probate and automatically receive the allocated assets through your trust terms in the event of your passing.
When creating your estate plan, there are two main types of trusts to be considered: revocable and irrevocable trusts.
Both types of trusts share similarities as well as differences. Understanding how each one works and the benefits of both can help you decide which one is right for you and your family at this time.
Below are the major differences between a revocable (also known as a Living Trust) and an irrevocable trust.
Making Changes to the Trust
There are times when you might, or should, want to modify certain parts of your trust. For example, you may decide to remove assets from the trust that you do not want passed down after you die according to those trust terms. You could also change which one of your beneficiaries receives specific property or the percentage in which they receive it. It is also crucial to make legal changes to reflect current law. If you would like to make changes, it is important to know if modifying the trust is possible.
With a revocable or living trust, you are allowed to modify, alter, change, or revoke the trust entirely at any point before you pass away. Among others, you can choose if you want to:
- Update the trust according to current law and your personal preferences
- Remove or change assets
- Remove or change beneficiaries
- Alter how you want your assets distributed
Unfortunately, there is not much flexibility with an irrevocable trust. Once you put everything down on paper, sign it in front of a notary public and witnesses, this type of trust usually becomes permanent.
Even if you change your mind about the distribution of your assets, the language in the signed trust could prevent you from modifying, altering, or revoking the trust later.
Ownership of Assets in a Trust
If you create a valid and legally binding irrevocable trust, you no longer own the assets once you transfer your property into the trust. Examples of some of these types of trusts are Veterans Trusts, Medicaid Trusts, Life Insurance Trusts, and some types of Gifting Trusts. The trust takes ownership of the property, and you, the grantor, cannot move any asset back into your name as you no longer own or have control of the assets or the trust. Additionally, you are usually not allowed to make changes regarding who will automatically have access to your property when you die.
Conversely, with a revocable trust, you still own the property moved into the trust. Technically, the trust assumes ownership of the assets you transfer. However, you can make changes to it at any time. As the name implies, you can even choose to revoke a revocable trust, although this is rarely done due to the numerous advantages and flexibility of Trust ownership.
Protecting Your Assets
An irrevocable trust typically offers more asset protection than a revocable trust. The person who creates a revocable trust (the grantor) remains in control over what goes in and out of the trust. The assets may be subject to legal action from the grantor’s creditors. If a creditor wants to go after a particular asset in the revocable trust, the court could issue a judgment to satisfy the liability. In simple terms, the property transferred into an irrevocable trust should remain protected from creditors as it is no longer owned by the grantor. A creditor likely will not be able to pursue a judgment for that asset unless it is deemed to be a fraudulent transfer.
It is important to consult with an experienced trust lawyer in Virginia when deciding which type of trust is best to meet your personal and financial needs. We are here to answer any questions you may have and help you create a plan that fully protects your family and assets. To get started, schedule an appointment at one of our law firm offices located in Williamsburg, Newport News, Virginia Beach or McLean by calling (757) 645-3176 or (866) 603-5976.