Irrevocable Vs. Revocable Trusts
by Takara Alexis

A trust is a legal agreement that allows a person (the trustee) to control certain assets that have been listed in the agreement. For a trust to be legitimate, it must have four parts. First is the grantor. This is the person who creates the trust. Usually it's the person who currently owns the assets being transferred to the trust. Second, the trust contains assets or property. Finally, the beneficiary or beneficiaries are the people who benefit from the trust. Beneficiaries get payments from the trust.

When property is held in trust, the trust agreement specifies what happens to the property when the grantor dies, or even if the grantor becomes incapable. These actions happen automatically without having to go through the court system. Beneficiaries don't have to bear the burden of court expenses tied with probate.

There are two major types of trusts - revocable and irrevocable trust. A revocable trust, also known as a revocable living trust or simply living trust, is in place as long as the grantor is still living. At any time, the grantor can "revoke" the trust and continue to make changes as long as he/he is still living. Changes can be made to a trust through a trust amendment. On the other hand, an irrevocable trust is one that cannot be altered.

Most trusts automatically convert to an irrevocable trust upon the grantor's death, but someone who is living can also create an irrevocable trust. What makes a trust irrevocable is that changes can't be altered. A joint revocable trust or a trust with multiple beneficiaries is divided into multiple irrevocable trusts when the trust maker passes away.

If an irrevocable trust can't be altered, why would someone choose to have one? When it comes to revocable trusts, creditors can seize the owner's property. Not only that, the assets will still be subject to estate taxes.

Beneficiaries don't have to worry about coming up with the cash to pay estate taxes. Assets in an irrevocable trust are also protected from creditor lawsuits. Fortunately, beneficiaries can still access the assets if need be. In a lot of states, even the trustmaker is able to be a beneficiary.

Though, by design, an irrevocable trust can't be altered, there are specific exceptions that allow beneficiaries or the trustee to modify the trust. For example, an estate plan might include a trust protector who can keep track of the trust details to make changes. Also, if the assets in a trust are sold, the trust is terminated.