What is the difference between revocable and irrevocable intervivos trusts?

Within estate planning, individuals have a myriad of options for maintaining control over assets beyond the grave. A tool often used in estate plans to control the flow of assets is an inter vivos trust, more commonly referred to as a living trust.

An inter vivos trust is a legal document created while the individual for which the trust is drawn up is still living. The assets are titled in the name of the living trust by the trust owner and are used or spent down by the trust owner while he is alive. Once the trust owner passes away, the designated beneficiaries of the trust are granted access to the assets, which are then managed by a successor trustee. A living trust is created as either a revocable or irrevocable, and each type of inter-vivos trust has a specific purpose.

A revocable living trust is a trust document created by an individual that can be changed over time. Designated beneficiaries, assets, distribution of those assets and assigned trustees can be changed at the request of the trust owner at any time after the trust is established or while it is in force. Similarly, if the trust owner decides the trust is no longer appropriate, he can revoke it altogether. A change to a revocable living trust is completed through a trust amendment document initiated by the trust owner.

Revocable living trusts are most often used to avoid probate and to protect the privacy of both the trust owner and beneficiaries of the trust. Revocable trusts may also be used to plan for mental disability of the trust owner. While revocable inter vivos trusts provide a great deal of flexibility to the trust owner, this type of trust is not appropriate for all estate-planning needs. If a trust is titled revocable, all assets used to fund the trust are considered the trust owner's personal assets. This means that revocable living trust assets are not protected from creditors in the event the trust owner is sued, nor are they sheltered from state or federal estate taxes when the trust owner passes away.

An irrevocable living trust is a trust document that cannot be changed after it has been signed. Designated trustees, beneficiaries or provisions within the trust remain the same from the time the trust is established until it is no longer applicable or no longer funded. A revocable living trust converts to an irrevocable trust once the trust owner passes away or once a specific provision of the revocable living trust is met. Specific provisions could include the death of a spouse, a certain date in the future or a life change for a designated beneficiary.

Irrevocable trusts provide state and federal estate tax protection to the designated beneficiaries who inherit the assets held in the trust. Additionally, assets titled under a irrevocable living trust are sheltered from creditors in the event of a lawsuit. In more complex cases, irrevocable living trusts can be used in charitable giving, either through a charitable remainder trust or a charitable lead trust. An irrevocable living trust is only appropriate for individuals willing to give up control over their assets while alive or those who need enhanced asset protection.