What’s the Difference Between a Revocable and Irrevocable Trust? (2024)

More Than Just a Name Difference

The difference between a revocable and irrevocable trust seems simple enough, just considering the terms themselves. A revocable trust can be revoked or changed. An irrevocable trust cannot be revoked or changed. But the difference goes far beyond that fact. Revocable trusts and irrevocable trusts serve very different purposes in estate planning.

When a grantor or settlor (the person who establishes a trust) creates a revocable trust, the grantor retains the ability not only to revoke or terminate the trust, but also to change it in any way at all. That includes changing the beneficiaries, trustee, and distribution terms. The grantor is free to remove assets from the trust as well.

However, when a grantor creates an irrevocable trust, the grantor cannot take any of those actions after the trust is established and funded. An irrevocable trust can only be changed or terminated in very specific and limited circ*mstances.

Revocable and irrevocable trusts each have different advantages and limitations. The grantor’s flexibility in controlling and changing a revocable trust makes that type of trust especially attractive for use in many estate plans. The restrictions in irrevocable trusts enable them to meet specific legal requirements in federal and state laws, which can provide significant benefits to the grantor and beneficiaries that would otherwise not be available.

Revocable Living Trusts

The most common type of revocable trust is a revocable living trust in an estate plan. This kind of trust is also called an inter vivos trust (from the Latin term that means “between the living”) or simply a living trust. (The opposite of an inter vivos trust is a testamentary trust, which takes effect on the grantor’s death.)

A living trust offers a number of advantages as part of an estate plan. However, a living trust is not, standing alone, a complete estate plan. Other legal documents are also necessary for a thorough estate plan, such as a pourover will and durable powers of attorney, as well as other accompanying documents.

A grantor who establishes a living trust retains complete control over the trust and all assets in the trust during the grantor’s lifetime. Assets in the trust can be sold or given away, or simply removed from the trust. Any term of the trust can be modified. The grantor also can revoke and terminate the trust at any time.

In most cases, the grantor of a living trust is also the trustee and beneficiary of the trust during their lifetime. Generally, on the grantor’s death, the living trust becomes an irrevocable trust. A successor trustee then manages and administers the trust and distributes assets to designated beneficiaries according to the trust terms.

One of the primary advantages of a living trust (when properly funded and used) is that assets in the trust do not go through probate. That means the details of the estate and family financial situation remain private. Beneficiaries receive their inheritance more quickly and without the cost of a long probate process.

A properly-written living trust also can provide protection for the grantor in the event of incapacity, with respect to those assets owned by the living trust. It should not go unnoticed that it is important to supplement one’s plan with a durable financial power of attorney for those assets that are not owned by the trust, such as IRAs and other qualified assets. In some cases, a living trust can also save on federal estate taxes.

For more information about revocable living trusts, please refer to our previous blog post, Should You Include a Living Trust in Your Estate Plan?

Irrevocable Trusts

There are many different kinds of irrevocable trusts. Most are established under a specific federal or state law that provides benefits to a grantor who creates an irrevocable trust that meets requirements stated in the law. Each irrevocable trust serves a need or goal of the grantor who creates it.

After an irrevocable trust is created and funded, the grantor cannot change the beneficiaries or terms, remove assets, or revoke (terminate) the trust, except in very limited circ*mstances. The terms of the trust and the laws governing it determine when and how changes or revocation may occur. Generally, changes in an irrevocable trust are permissible only if allowed: 1) by the terms of the trust (changes permitted by the trust terms may be required to meet specific criteria by the law governing the trust), 2) by a federal or state law (such as statutory trust decanting or revision of an applicable law), or 3) by a court order on petition of the trustee and beneficiaries (which is available only in certain circ*mstances).

Establishing an irrevocable trust provides specific benefits to the grantor or beneficiary, or both. The benefits depend on the nature of the irrevocable trust. Many irrevocable trusts have an asset protection goal, either by avoiding payment of federal estate taxes unnecessarily, preserving eligibility for government benefits, or preventing access to assets by creditors. Following are examples of these types of irrevocable trusts.

Special Needs Trust

A special needs trust can be a type of irrevocable trust that benefits an individual with special needs without jeopardizing the person’s ability to receive government assistance from programs with means-based eligibility requirements like Medicaid and Supplemental Security (SSI). The grantor of a special needs trust usually is a parent, grandparent, or legal guardian. The beneficiary is the child or adult with special needs.

A similar type of trust may also sometimes be used in Medicaid planning to protect an elder’s assets while meeting eligibility requirements for nursing home and long-term care benefits.

Domestic Asset Protection Trusts

A domestic asset protection trust (DAPT) is a type of irrevocable trust permitted in Michigan under a statute that took effect in 2017. A DAPT enables a grantor to benefit from the trust while protecting assets in the trust from creditors. Specific requirements apply to a trust created under these relatively new statutory provisions.

Charitable Trusts

Federal and state statutes allow several types of irrevocable trusts that enable a grantor to create a tax-exempt trust that benefits charity and reduces the grantor’s taxable income.

Other Irrevocable Trusts

There are many other types of irrevocable trusts that address specific needs or accomplish identified goals of a person creating an estate plan. Your estate planning attorney helps you determine whether a trust (revocable or irrevocable) may be beneficial as part of your estate plan.

We Highly Recommend a Lawyer For Revocable and Irrevocable Trusts

No one should ever attempt to create any type of trust without assistance from an experienced estate planning attorney. The importance of that caution cannot be overstated.

Extremely complex state and federal laws govern creation and operation of trusts. If you try to make a trust using a form or online service, you take substantial risks that might have disastrous financial and emotional consequences for yourself and your loved ones.

It simply is not worth trying to save a few dollars by going the DIY route, when you could easily end up creating legal problems that are very costly to fix — or, in some cases, may not be identified before it’s too late to fix them. Please, do not take that chance. If you think a trust might be right for your estate plan, talk through all your circ*mstances with a knowledgeable estate planning lawyer before you do anything else.

Talk With Our Experienced Troy, Michigan Estate Planning Attorneys

At the law firm of , we provide a full range of services relating to estate planning, including trusts. We’ve been serving clients in Oakland County and beyond for more than 40 years. Our clients count on our commitment, experience, and credentials when they turn to us for their legal needs.

If you’d like to learn more about revocable and irrevocable trusts, call us today at (248) 494-4577 or use our online form to talk with our experienced estate and probate attorneys.