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Revocable vs. Irrevocable Trusts: Which is Right for Me?

Often, individuals create trusts as an important part of their estate plan. Depending on the type of trust, they offer several benefits from avoiding certain taxes and probate, to protecting assets from creditors, and other financial and privacy concerns.


What is a Trust?

A trust is a legal agreement in which a person, the grantor, designates a trustee to manage and distribute the assets or property to beneficiaries. The grantor is the person who funds the trust. The grantor designates a trustee to manage the trust assets. The beneficiaries are the people or organizations that may receive the assets from the trust.


What is a Revocable Trust?

A revocable trust is created and funded during the lifetime of the grantor. As the name suggests, the grantor has the ability to change any or all parts of the trust throughout their lifetime. For example, if you create a revocable trust, you are able to add or remove beneficiaries at any time, as well as assets or property, and you can change the designated trustee. You also have the ability to terminate the trust. A revocable trust becomes irrevocable when the grantor passes away or becomes incompetent, which means it is no longer amendable and the documents become final.  Typically, the grantor is the Trustee and primary beneficiary of a revocable trust during his or her lifetime.

Revocable trusts are used to avoid probate and maintain the privacy of the grantor and beneficiaries.

On the other hand, the assets in a revocable trust are not protected from the creditors of the grantor. The assets in a revocable trust may also be subject to state and federal taxes when the grantor passes away.



What is an Irrevocable Trust?

An irrevocable trust is created by the grantor but, unlike a revocable trust, it cannot be amended (unless certain very specific rules are followed). Typically, irrevocable trusts are used when the grantor will not remain a beneficiary.  Accordingly, the grantor gives up all rights of ownership to the assets used to fund the trust. In effect, the ownership is immediately transferred to the trustees and designated beneficiaries. However, the beneficiaries will only receive the assets included in the trust according to the agreement’s terms. Maryland law allows for certain changes to be made to an irrevocable trust, but only if all interested parties agree to the changes in writing.

Irrevocable trusts generally offer creditor protection of the assets for the trust beneficiaries. Similar to revocable trusts, irrevocable trusts are not subject to probate and are considered a private way to transfer wealth to the designated beneficiaries.



Which Trust is Right for Me?

The main difference between using irrevocable and revocable trusts is the amount of control you, as the grantor, retain over the property funding the trust and whether you are trying to remove assets from your taxable estate. There are, however, many other factors to consider when choosing and creating a trust. You must consider the long-term benefits of either trust structure to determine which is best for your individual needs. In some cases, you may want to set up both an irrevocable and a revocable trust for different reasons and for different beneficiaries.  For example, in a typical situation, you may have a revocable trust to hold your assets for your own benefit, which could help avoid probate and provide privacy, while you may have an irrevocable trust for assets you gift to your children, which would remove those assets from your taxable estate while also ensuring protection from your children’s creditors.


At Sessa & Dorsey, we consider the bigger picture at hand and advise our clients on the best trusts for their specific needs and desires. If you have questions about estates and trusts, please contact us at (443) 589-5600.



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