Revocable Trusts and Irrevocable Trusts

Revocable Trusts and Irrevocable trusts

What is a revocable trust?
A revocable trust, more commonly known as a revocable living trust, is an estate planning tool in which the person creating the trust (the grantor) places assets in trust for the benefit of the grantor or other beneficiaries such as friends or family. Commonly the grantor names himself or herself as the trustee.
As the trustee, the grantor will also be responsible for managing the trust's assets. This is an effective and popular strategy, particularly if the value of the assets can be increased through investment or requires close management.
In the event a grantor becomes incapacitated or unwilling to continue as trustee a successor trustee can be designated to manage the trust's assets. In this capacity, revocable trusts provide a significant amount of flexibility in addressing unplanned events in the grantor’s life.
Setting Up a Revocable Trust
The mechanics of setting up a revocable living trust are similar to setting up any other type of trust. There must be a grantor, trust assets, a trustee and a trust agreement. The latter offers the grantor the ability to dictate how his or her assets will be handled, in this sense a living trust is often referred to as a living will due to its ability to serve in the same capacity as a will without the need for probate.    
When setting up a trust, the grantor will establish what can be best described as the “ground rules” for the living revocable trust. These rules are articulated in the trust agreement.  
The trust agreement, instructs the trustee on how to manage the trust's assets during the grantor’s lifetime and posthumously, specifically outlining the manner in which the assets will be distributed to the beneficiaries. In cases where the trust assets require management or investment, the trust agreement can establish the rules by which the assets will be administered.
If, during the grantor’s lifetime, the trust is not being managed properly or circumstances change making the trust unnecessary this type of trust can be revoked by the person who created the trust (the "grantor"). For those individuals who want a trust, yet require flexibility a revocable trust provides an estate planning tool which can be adapted as needed.  
What is a irrevocable trust?
Unlike a revocable trusts, irrevocable trusts cannot be modified or dissolved without the trustee's and all of the beneficiaries’ permission.  However, the same rules applicable to all trusts concerning creation and management apply. The only difference rests in the fact that a revocable trust can be modified or revoked whereas an irrevocable trust cannot be modified or revoked.
In situations in which the grantor is firm in having his or her wishes executed in a particular manner through the trust an irrevocable trust offers a way of protecting against changes to the trust that could run contrary to the grantor’s intentions.  
Comparing revocable living trusts with irrevocable living trusts.
When asked to evaluate the comparative benefits between a revocable and irrevocable trusts, estate planners consider both the long-term plan of the grantor, financial implications of the plan, and the circumstances involving the beneficiaries. One cannot state that one performs better than the other. Rather how each particular estate-planning tool performs depends on individual circumstances and the grantor’s overall estate planning goals.
For example, in circumstances where the grantor’s family may contest or misuse their benefits from the estate, an irrevocable trust can ensure that the grantor’s original estate plan stays intact after their death and can ensure that estate assets will not be wasted or spent frivolously. However, a very important aspect to note is that when a person who has created a living revocable trust and then dies, that trust then reverts to an irrevocable trust.
Benefits of a Revocable Living Trust
A revocable living trust provides valuable estate planning. It allows you to exercise control over your assets during your life and upon your death.  A living trust may be used as a substitute for a will, so as circumstances change such as marriage, divorce, and children, the trust can be modified accordingly. Further, both forms of trust can significantly reduce or eliminate probate and administrative expenses. However, an irrevocable trust offers less flexibility in this regard.
An attorney experienced in establishing and managing revocable and irrevocable trusts can provide legal advice regarding what to expect from these estate-planning tools. An experienced revocable and irrevocable trusts attorney can reduce a great deal of uncertainty for those who wish to pass on assets to loved ones knowing that their will has been properly prepared and will be effective when needed. Further, an experienced attorney may be able to advise you on lowering estate costs and avoiding or lowering Federal and State tax liability on estate assets.