Differences Between a Revocable Trust and an Irrevocable Trust

Differences Between a Revocable Trust and an Irrevocable Trust

By Phil Rarick, Weston Trust Attorney, and Jasmine Benitez, Legal Assistant

When planning your estate, choosing the right type of trust is crucial. Two of the most common options are revocable trusts and irrevocable trusts. While revocable and irrevocable trusts serve important roles in managing and distributing your assets, they differ in key ways. Here’s a quick overview to help you understand the differences.

What is a Revocable Trust?

The “master instructions” for most estate plans is a revocable trust because of the unlimited flexibility provided by this type of trust. Also known as a living trust or family trust, this trust allows the grantor to maintain total control over the assets in the trust. You can change, modify, or revoke the trust at any time. This flexibility makes it ideal for people who want to retain control over their estate plan while avoiding the lengthy and costly probate process.

Note: A common misunderstanding about revocable trusts is that they provide asset protection for assets owned by the trust.

The revocable trust is an important legal tool to avoid guardianship and probate, but it does not provide asset protection because the assets are still considered part of your estate. Therefore, unless otherwise protected by Florida law, the assets in a revocable trust are exposed to creditors.

What is an Irrevocable Trust?

An irrevocable trust is a trust that, once created, cannot be altered or revoked. The grantor relinquishes direct control over the assets transferred into the trust but indirectly controls the assets because the trustee must follow the trust instructions. If properly structured, this type of trust offers significant benefits, such as asset protection and estate tax reduction. Since the assets are no longer part of the grantor’s estate, they are typically protected from creditors and legal claims.

Note: Florida does not recognize self-settled trusts or irrevocable trusts as an asset protection entity. A self-settled trust is one in which the grantor is also the beneficiary. A possible asset protection irrevocable trust in Florida for a married couple is a SLAT-spousal lifetime access trust, where one spouse is the grantor and the other is a beneficiary.

Key Differences Between the Two

• Control: In a revocable trust, you retain control and can make changes. In an irrevocable trust, you give up control permanently.
• Asset Protection: Irrevocable trusts can offer better asset protection, while revocable trusts leave your assets exposed to creditors.
• Taxes: Revocable trusts don’t provide tax benefits, as the assets remain in your estate. Irrevocable trusts can help reduce estate taxes and may offer favorable tax treatment.
• Flexibility: Revocable trusts are more flexible and adaptable to life changes, while irrevocable trusts are permanent once established.

Which One Is Right for You?

• Revocable Trust: For most persons, a living revocable trust should be the centerpiece of your estate plan because it provides total flexibility while avoiding probate.
• Irrevocable Trust: An option for those seeking asset protection, tax benefits, and reduced estate taxes.

Conclusion

Both revocable and irrevocable trusts have their advantages. If you need help deciding which trust is right for your needs, consult with an experienced estate planning attorney. We can guide you through the process and help you make the best decision for your future.

For more information, contact Phil Rarick, Weston Trust Attorney, at info@raricklaw.com.

Special Note

The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on the information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an attorney who is experienced in Florida trust law. Your receipt of information from this website, blog, or Miami trust attorney does not create an attorney-client relationship and the legal privileges inherent therein.