What is the difference between Revocable Trust and Irrevocable Trust?

A revocable trust and an irrevocable trust are two different types of trusts that serve different purposes and have distinct characteristics. Here's an overview of the differences between them:

Revocable Trust:

1. Control: In a revocable trust, the person who establishes the trust, known as the grantor or settlor, retains the ability to modify, amend, or revoke the trust during their lifetime.

2. Flexibility: The terms and provisions of a revocable trust can be altered or revoked by the grantor at any time without needing the consent of the beneficiaries.

3. Assets and Taxes: The assets placed in a revocable trust remain under the control and ownership of the grantor for tax purposes. The trust is not considered a separate taxable entity, and income and capital gains generated by the trust's assets are typically attributed to the grantor.

4. Probate Avoidance: One of the primary advantages of a revocable trust is that it can help avoid probate. When the grantor passes away, the trust assets can pass directly to the beneficiaries specified in the trust without going through the probate process.

5. Creditor Protection: Revocable trusts do not provide significant protection against creditors because the grantor retains control and access to the trust assets.

Irrevocable Trust:

1. Control: Unlike a revocable trust, an irrevocable trust cannot be modified, amended, or revoked by the grantor once it has been established, except under exceptional circumstances and with the consent of all beneficiaries.

2. Asset Protection: Assets transferred to an irrevocable trust are no longer considered part of the grantor's estate and are typically shielded from creditors and legal claims. This makes irrevocable trusts useful for protecting assets from potential lawsuits or financial liabilities.

3. Tax Planning: Irrevocable trusts can offer various tax planning benefits. For example, certain types of irrevocable trusts can help minimize estate taxes, provide charitable deductions, or facilitate the transfer of wealth to future generations with reduced tax consequences.

4. Medicaid Eligibility: By transferring assets to an irrevocable trust, individuals may be able to establish eligibility for Medicaid benefits while preserving some assets for their beneficiaries.

5. Trustee Control: Since the grantor relinquishes control over the assets, an independent trustee is typically appointed to manage the trust and make decisions regarding distributions and investments.

It's important to note that trust laws and regulations can vary between jurisdictions, so it's advisable to consult with an experienced estate planning attorney or financial advisor to understand the specific implications of establishing either type of trust in your particular situation.