Revocable & Irrevocable Trusts

A trust is a powerful tool that can help you manage, protect, and distribute your assets according to your specific wishes. Almost every trust maker, often called a settlor or grantor, must determine whether they will structure their entity as a revocable or irrevocable trust. Understanding the uses and differences of the two options is crucial for effective estate and asset planning and will help provide peace of mind to you and your loved ones.

What is a revocable trust?

A revocable trust is also known as a living trust. These kinds of trusts allow you to retain control over your assets while you’re still alive. As the living grantor, you can modify the trust terms, add or remove assets, or even revoke the trust entirely at any given time prior to death.

Key Features of a Revocable Trust

Flexibility. A revocable trust is known for its flexibility. You can change the trust provisions, beneficiaries, and assets at any time as your life circumstances change.
Control. With a revocable trust, you retain full control of the assets within the trust during your lifetime. You can act as the living trustee, managing the assets as you see fit.
Probate Avoidance. Assets within both revocable and irrevocable trusts are capable of avoiding probate, which is the legal process through which a deceased person’s assets are distributed. Not only will this make the disposition of your estate easier, but it will also save your heirs time and money.
Privacy. Unlike a basic last will and testament (“will”), which can become public record during a probate, the terms of a revocable trust remain private. Your assets and beneficiaries will remain confidential throughout the legal processes regarding your estate unless a dispute arises, which is rare for a well-drafted trust agreement.

Drawbacks of a Revocable Trust

Minimal to No Tax Benefits. Because you retain control over your assets during your lifetime, they become considered part of your estate for tax purposes. This means they are often subject to estate taxes upon your death. Discuss estate and gift tax implications with your accountant.
Creditor Risks. Assets in revocable trusts are not protected from creditors, because the trust maker typically still retains control over them by acting as the trustee. If you were to face legal issues or debts during your lifetime, creditors can still gain access to your assets within the trust because they are technically still within your legal control.
Management Costs. Revocable trusts save money on probate, but can incur management and administrative costs during your lifetime, as you have to oversee the trust and its assets. However, the cost is minimal if the trust maker acts as their own trustee during their lifetime.

What is an irrevocable trust?

An irrevocable trust, true to its name, cannot be altered or revoked once it is established and funded. Once you transfer your assets into an irrevocable trust, you relinquish control over them. This kind of trust can be perfect for protecting assets from creditors, ensuring the distribution of charitable donations, or support of disabled family members.

Key Features of an Irrevocable Trust

Asset Protection. Assets in an irrevocable trust are generally protected from creditors trying to collect on debts and lawsuit judgments, as they are no longer under your control or considered a part of your estate.
Tax Advantages. Irrevocable trusts can offer significant tax benefits. Since the assets are removed from what is your traditionally taxable estate, you could potentially reduce the estate tax liability on your estate and heirs. Always discuss estate tax matters with your accountant.
Medicaid Planning. One of the main ways irrevocable trusts are used is with Medicaid planning. Transferring assets into irrevocable trusts can qualify people for Medicaid benefits all while preserving wealth for your heirs.
Specific Purposes. The perk of an irrevocable trust is that they can be narrowly tailored for very particular purposes. They are often used to designate specific charitable gifts upon death or ensure financial support for disabled family members or heirs.

Drawbacks of an Irrevocable Trust

Lack of Control. Once assets are placed within an irrevocable trust, you no longer have singular control over them. You cannot access or change the assets in an irrevocable trust without the consent of the beneficiaries. This is a significant drawback for those who wish to retain sole control over their assets during their lifetime.
Complexity. Setting up an irrevocable trust is inherently more complex than establishing a revocable trust, as it requires careful planning and will have ongoing management needs.
Potential Loss of Benefits. Transferring assets into and out of an irrevocable trust can affect your eligibility for certain benefits, like government assistance programs, if not planned properly.

Key Differences Between Revocable and Irrevocable Trusts

The key features between revocable and irrevocable trusts are: control, flexibility, asset protection, tax implications, probate avoidance, management costs, and privacy. There are some similar traits between revocable and irrevocable trusts, like retaining of privacy, potential incurring of management costs, and avoidance of probate. However, there are a few key differences between revocable and irrevocable trusts, such as:

FEATURE	REVOCABLE TRUST	IRREVOCABLE TRUST
Control	Retain control over assets	Hire an independent trustee to manage trust
Flexibility	Can be changed or revoked	Cannot be changed or revoked
Asset Protection	Limited protection from creditors	Strong protection from creditors
Tax Implications	Assets are part of your estate	Assets are removed from your estate

When should you use a revocable trust?

Generally, a revocable trust may be the right choice for you if:

You need flexibility and control over your assets during your lifetime
Probate avoidance is important to you
Maintaining privacy is essential to you
You have minor children and want to ensure that their inheritance is managed responsibly

When should you use an irrevocable trust?

Generally, an irrevocable trust may me more suitable to your needs if:

Increased asset protection from creditors is a major priority
You want to potentially reduce your taxable estate
You need to plan around Medicaid Eligibility
Ensuring specific charitable gifts or providing for disabled family members upon your passing is important to you

Frequently Asked Questions About Revocable and Irrevocable Trusts

Can I ever Change an Irrevocable Trust? Irrevocable trusts are generally not changeable. However, when authored properly, some provisions can allow for modifications under particular circumstances. Some permitted modifications may require court approval, consent from all beneficiaries, or both.
Do I need an attorney to set up a trust? We highly recommend that you consult with an experienced estate planning attorney, even if you don’t use us. A skilled attorney can help guide you through the process, ensure that you are in compliance with the nuances of trust law, and tailor the
trust to your exact needs.
What Happens to the Trust Upon my Death? Upon death of the maker, a revocable trust becomes an irrevocable trust, because the maker is no longer alive to choose which amendments they want. The successor trustee takes over after the maker’s death to manage and distribute trust assets according to your instructions. An irrevocable trust may continue to be managed according to its terms, and beneficiaries will receive the assets as specified within the trust.
How Much Does It Cost to Set Up a Trust? The costs of setting up a trust can vary widely based upon complexity of the intended use of the trust and the specific provisions included. Avenue Legal Group provides clarity and simplicity in all pricing, including the creation, management, and termination of a trust.

Oklahoma Wills and Trusts Attorneys

Choosing between a revocable and irrevocable trust is a significant decision that can impact your estate planning strategy and legal protection. Ultimately, the right choice depends on your personal circumstances, financial goals, and the long-term vision for your estate.

Consulting with an estate planning attorney can help you navigate the complexities of trust option and ensuring your wishes are honored while safeguarding your legacy. Contact the wills and trusts attorneys at Avenue Legal Group to help you manage your future with an estate plan customized to your needs.

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